Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION ...mercindia.org.in/pdf/Order 58 42/MSETCL_Order _39 of 2013.pdf · Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

Before the

MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai – 400 005

Tel. 22163964/ 65/ 69 Fax 22163976

Email: [email protected]

Website: www.mercindia.org.in / www.merc.gov.in

Case No. 39 of 2013

IN THE MATTER OF

Petition for Truing up for FY 2011-12, Annual Performance Review of FY 2012-13 and

Aggregate Revenue Requirement for the MYT Second Control Period from FY 2013-14

to FY 2015-16 of Maharashtra State Electricity Transmission Company Limited

(MSETCL)

Shri Vijay L. Sonavane, Member

Smt. Chandra Iyengar, Member

Maharashtra State Electricity Transmission Company Limited (MSETCL) ...............Petitioner

ORDER

13 February, 2014

Maharashtra State Electricity Transmission Company Limited submitted a Petition seeking

approval of Truing up for FY 2011-12, Annual Performance Review for FY 2012-13 and

determination of Aggregate Revenue Requirement for the MYT Second Control Period from

FY 2013-14 to FY 2015-16 under the provisions of MERC (Terms and Conditions of Tariff)

Regulations, 2005 and MERC (Multi Year Tariff) Regulations, 2011, respectively. The

Commission, in exercise of the powers vested in it under Section 61 and Section 62 of the

Electricity Act, 2003 (EA 2003) and all other powers enabling it in this behalf, and after

taking into consideration all the submissions made by MSETCL, all the objections and

comments of the public, issues raised during the Public Hearing and all other relevant

material, has carried out Truing up for FY 2011-12, APR for FY 2012-13 and ARR for the

MYT Second Control Period from FY 2013-14 to FY 2015-16 in this Order.

mailto:[email protected]

http://www.mercindia.org.in/

http://www.merc.gov.in/

Case No. 39 of 2013 MSETCL True up of FY 2011-12, APR FY 2012-13, MYT 2nd

Control Period

MERC, Mumbai Page 2 of 143

Table of Contents

1. INTRODUCTION...................................................................................................... 10

1.1. Background .............................................................................................................................. 10

1.2. Organisation of the Order ........................................................................................................ 11

1.3. Tariff Regulations and Control Period ..................................................................................... 12

1.4. Petition and prayers of the Petitioner ....................................................................................... 14

1.5. Admission of Petition and Public Hearing process .................................................................. 15

2. OBJECTIONS RECEIVED, MSETCL’S RESPONSE AND THE

COMMISSION’S RULING ...................................................................................... 17

2.1. Transmission Losses and Efficiency ........................................................................................ 17

2.2. Aggregate Revenue Requirement ............................................................................................ 19

2.3. Public process .......................................................................................................................... 21

2.4. Cost of gas ............................................................................................................................... 22

2.5. Compensation for land and Non-compliance of Provisions of Acts and Regulations ............. 23

2.6. Capitalisation and Disallowed Capitalisation .......................................................................... 26

2.7. Use of Contractors/ Private Companies/ Agents ...................................................................... 27

2.8. Quality control ......................................................................................................................... 28

3. IMPACT OF DISALLOWED CAPITALISATION OF ASSETS FOR

PREVIOUS YEARS .................................................................................................. 30

3.1. Background .............................................................................................................................. 30

3.2. Impact of Disallowed Capitalisation of Assets during FY 2007-08 ........................................ 30

3.3. Impact of Disallowed Capitalisation of Assets during FY 2008-09 ........................................ 32

3.4. Impact of Disallowed Capitalisation of Assets for FY 2007-08 and FY 2008-09 in FY 2009-

10 ............................................................................................................................................. 33

3.5. Impact of Disallowed Capitalisation of Assets for FY 2010-11 .............................................. 34

3.6. Disallowed capitalisation approved by the Commission ......................................................... 36

3.7. Impact of disallowed capitalisation analysed by the Commission........................................... 38

3.8. Carrying Cost on increase in ARR due to impact of disallowed capitalisation ....................... 53

4. TRUING UP OF AGGREGATE REVENUE REQUIREMENT FOR FY 2011-12

............................................................................................................................ 54

4.1. Background .............................................................................................................................. 54


Control Period


4.2. Change of Accounting Policy .................................................................................................. 54

4.3. Truing up of O&M expenses for FY 2011-12 ......................................................................... 54

4.4. Employee expenses for FY 2011-12 ........................................................................................ 56

4.5. Administrative and general expenses ....................................................................................... 59

4.6. Repair and Maintenance(R&M) expenses ............................................................................... 66

4.7. Capital Expenditure and Capitalisation.................................................................................... 68

4.8. Depreciation including advance against depreciation (AAD) ................................................. 71

4.9. Interest on Long term Loans .................................................................................................... 72

4.10. Other Interest & Finance Charges ............................................................................................ 75

4.11. Interest on Working Capital (IoWC) ....................................................................................... 76

4.12. Other Expenses ........................................................................................................................ 78

4.13. Return on Equity ...................................................................................................................... 81

4.14. Income Tax .............................................................................................................................. 82

4.15. Contribution towards contingency reserves ............................................................................. 83

4.16. Revenue from Transmission Charges ...................................................................................... 84

4.17. Non-Tariff Income ................................................................................................................... 85

4.18. Incentive on Transmission Availability ................................................................................... 90

4.19. Sharing of gains/losses ............................................................................................................. 91

4.20. Summary of efficiency gains/ (losses) for FY 2011-12 ........................................................... 93

4.21. Revenue (Gap)/ surplus till FY 2011-12 .................................................................................. 93

4.22. Summary of Truing up including Sharing of Gains & Losses for FY 2011-12 ....................... 94

4.23. Performance Parameters .......................................................................................................... 95

5. ANNUAL PERFORMANCE REVIEW FOR FY 2012-13 .................................... 98

5.1. Background .............................................................................................................................. 98

5.2. O&M Expenses for FY 2012-13 .............................................................................................. 98

5.3. Capitalisation ......................................................................................................................... 101

5.4. Interest and Finance Charges ................................................................................................. 102

5.5. Depreciation ........................................................................................................................... 104

5.6. Interest on working capital and consumer security deposit ................................................... 105

5.7. Return on Equity .................................................................................................................... 107

5.8. Other Expenses ...................................................................................................................... 109

5.9. Contingency Reserves ............................................................................................................ 109

5.10. Income Tax ............................................................................................................................ 110


Control Period


5.11. Non-Tariff Income ................................................................................................................. 110

5.12. Income from wheeling received from Goa and Dadra Nagar ................................................ 112

5.13. Summary of Estimated Aggregate revenue requirement for FY 2012-13 ............................. 113

5.14. Revenue Gap for FY 2012-13 ................................................................................................ 114

6. AGGREGATE REVENUE REQUIREMENT FOR MYT SECOND CONTROL

PERIOD .................................................................................................................... 115

6.1. Background ............................................................................................................................ 115

6.2. O&M expenses ...................................................................................................................... 115

6.3. Capital expenditure and capitalisation ................................................................................... 118

6.4. Depreciation ........................................................................................................................... 120

6.5. Interest on long-term loans .................................................................................................... 122

6.6. Interest on working capital ..................................................................................................... 125

6.7. Contribution to contingency reserves .................................................................................... 127

6.8. Return on equity (RoE) .......................................................................................................... 127

6.9. Income tax .............................................................................................................................. 129

6.10. Non-Tariff income ................................................................................................................. 131

6.11. Income from wheeling charges received from Goa and Dadra Nagar ................................... 134

6.12. Aggregate revenue requirement ............................................................................................. 135

6.13. Transmission Tariff for Second Control Period ..................................................................... 136

7. SUMMARY OF DIRECTIVES ISSUED BY THE COMMISSION AND

COMPLIANCE STATUS ....................................................................................... 137

7.1. Background ............................................................................................................................ 137

7.2. Assets put to use .................................................................................................................... 137

7.3. Submission of Business Plan ................................................................................................. 138

7.4. Quantification of controllable and uncontrollable expenses .................................................. 138

7.5. Information on theft of electrical lines, plants and installations ............................................ 139

7.6. Compliance report on investment of foreign exchange gain/loss in securities ...................... 140

8. APPLICABILITY OF THE ORDER .................................................................... 141


Control Period


List of Tables

Table 1: Transmission Losses for Intra-State Transmission System submitted by MSETCL 18

Table 2: Revised Transmission Loss of InSTS for FY 2011-12 submitted by MSETCL ....... 19

Table 3: Query on ARR submitted by Shri George John ........................................................ 20

Table 4: Abstract of Accidents submitted by MSETCL .......................................................... 29

Table 5: Claim of Disallowed Capitalisation for FY 2007-08 submitted by MSETCL ......... 31

Table 6: Impact of disallowed capitalisation for FY 2007-08 submitted by MSETCL .......... 32

Table 7: Claim on disallowed capitalisation for FY 2008-09 by MSETCL ........................... 33

Table 8: Impact of claim on disallowed capitalisation for FY 2008-09 submitted by MSETCL

.................................................................................................................................................. 33

Table 9: Impact of claim on disallowed capitalisation for FY 2009-10 submitted by MSETCL

.................................................................................................................................................. 34

Table 10: Claim on disallowed capitalisation for FY 2010-11 by MSETCL ......................... 35

Table 11: Impact of claim on disallowed capitalisation for FY 2010-11 submitted by

MSETCL ................................................................................................................................. 35

Table 12: Summary of Impact due to Disallowed Capitalisation submitted by MSETCL .... 36

Table 13: Disallowed capitalisation approved by the Commission ........................................ 38

Table 14: Past True up Orders considered in analysis ............................................................. 39

Table 15: Depreciation for FY 2007-08 approved by the Commission .................................. 40




Table 19: Interest expenses for FY 2007-08 approved by the Commission ........................... 43




Table 23: Net increase in interest expenses approved by the Commission ............................ 45

Table 24: Return on equity for FY 2007-08 approved by the Commission ........................... 46

Table 25: Return on Equity for FY 2008-09 approved by the Commission ........................... 47



Table 28: Net increase in Return on Equity approved by the Commission ............................ 49

Table 29: Net increase in incentive on transmission system availability approved by the


Control Period


Commission ............................................................................................................................ 52

Table 30: Impact of disallowed capitalisation as approved by the Commission .................... 52

Table 31: O&M expenses submitted by MSETCL ................................................................. 55

Table 32: Reconciliation of O&M expenses submitted in the Petition and audited annual

accounts as submitted by MSETCL ........................................................................................ 56

Table 33: Deviation analysis of Employee expenses for FY 2011-12 .................................... 57

Table 34: Employee expenses approved by the Commission for FY 2011-12 ....................... 59

Table 35: Asset base submitted by MSETCL .......................................................................... 60

Table 36: Year-wise increment of assets submitted by MSETCL ........................................... 60

Table 37: Electricity charges submitted by MSETCL ............................................................ 61

Table 38: Deviation analysis of A&G expenses for FY 2011-12 ........................................... 62

Table 39: A&G expenses approved for FY 2011-12 by the Commission .............................. 66

Table 40: Deviation analysis of R&M expenses for FY 2011-12 .......................................... 66

Table 41: Net R&M Expenses approved for FY 2011-12 by the Commission ...................... 68

Table 42: Net O&M expenses approved for FY 2011-12 by the Commission ...................... 68

Table 43: Capital Expenditure and Capitalisation for FY 2011-12 submitted by MSETCL .. 69

Table 44: Capital Expenditure and Capitalisation for FY 2011-12 approved by the

Commission ............................................................................................................................ 70

Table 45: Depreciation including advance against depreciation for FY 2011-12 submitted by

MSETCL ................................................................................................................................. 71

Table 46: Depreciation including AAD for FY 2011-12 approved by the Commission ........ 72

Table 47: Interest on long term loans for FY 2011-12 approved by the Commission ........... 75

Table 48: Other Interest and Finance Charges for FY 2011-12 approved by the Commission

.................................................................................................................................................. 76

Table 49: Interest on Working Capital for FY 2011-12 as approved by the Commission ..... 78

Table 50: Break-up of other expenses submitted by MSETCL .............................................. 78

Table 51: Prior period expenses submitted by MSETCL ....................................................... 79

Table 52: Other Expenses for FY 2011-12 approved by the Commission ............................. 80

Table 53: Return on Equity for FY 2011-12 submitted by MSETCL .................................... 81

Table 54: Return on equity approved for FY 2011-12 approved by the Commission ........... 82

Table 55: Income Tax for FY 2011-12 as approved by the Commission ............................... 83

Table 56: Contribution towards Contingency Reserves for FY 2011-12 approved by the

Commission ............................................................................................................................ 84


Control Period


Table 57: Revenue from Transmission Charges for FY 2011-12 submitted by MSETCL .... 84

Table 58: Revenue from Transmission Charges for FY 2011-12 as approved by the

Commission ............................................................................................................................ 85

Table 59: Non-Tariff income for FY 2011-12 submitted by MSETCL ................................. 85

Table 60: Details of miscellaneous receipts for FY 2011-12 submitted by MSETCL ........... 88

Table 61: Classification of scrap .............................................................................................. 89

Table 62: Non-Tariff income for FY 2011-12 approved by the Commission ........................ 90

Table 63: Incentive on transmission availability for FY 2011-12 submitted by MSETCL ... 90

Table 64: Incentive on transmission availability for FY 2011-12 approved by the Commission

.................................................................................................................................................. 91

Table 65: Sharing of Efficiency Gains/(Losses) due to variation in O&M Expenses & Interest

on Working Capital for FY 2011-12 ....................................................................................... 93

Table 66: Cumulative revenue (Gap)/ surplus till FY 2011-12 .............................................. 93

Table 67: Summary of True up for FY 2011-12 approved by the Commission ..................... 94

Table 68: Status of ABT meters installed for interface locations ............................................ 96

Table 69: Transmission loss for InSTS for FY2011-12 submitted by MSETCL .................... 96

Table 70: Revised Transmission Loss of InSTS for FY 2011-12 Submitted by MSETCL .... 97

Table 71: O&M Expenses for FY 2012-13 submitted by MSETCL ...................................... 99

Table 72: Component-wise O&M expenses submitted by MSETCL .................................... 99

Table 73: O&M Expenses for FY 2012-13 approved by the Commission ........................... 101

Table 74: Capitalisation for FY 2012-13 submitted by MSETCL ....................................... 101

Table 75: Capitalisation for FY 2012-13 approved by the Commission .............................. 102

Table 76: Estimated Interest Expenses for FY 2012-13 submitted by MSETCL ................. 103

Table 77: Interest expenses for FY 2012-13 approved by the Commission ......................... 104

Table 78: Estimated depreciation for FY 2012-13 submitted by MSETCL ......................... 104

Table 79: Depreciation for FY 2012-13 approved by the Commission ................................ 105

Table 80: Interest on working capital for FY 2012-13 approved by the Commission ......... 107

Table 81: Return on equity for FY 2012-13 approved by the Commission ......................... 108

Table 82: Other expenses for FY 2012-13 approved by the Commission ............................ 109

Table 83: Contingency Reserves for FY 2012-13 approved by the Commission ................ 110

Table 84: Income Tax for FY 2012-13 approved by the Commission ................................. 110

Table 85: Non Tariff Income for FY 2012-13 approved by the Commission ...................... 112

Table 86: Income from wheeling received from Goa and Dadra Nagar for FY 2012-13


Control Period


approved by the Commission ................................................................................................ 113

Table 87: Summary of Aggregate Revenue Requirement for FY 2012-13 approved by the

Commission .......................................................................................................................... 113

Table 88: Cumulative Revenue Gap till FY 2012-13 approved by the Commission ........... 114

Table 89: O&M expenses submitted by MSETCL ............................................................... 116

Table 90: O&M expenses approved for the Second Control Period .................................... 117

Table 91: Capitalisation submitted by MSETCL .................................................................. 118

Table 92: Capitalisation approved by the Commission ........................................................ 120

Table 93: Depreciation as submitted by MSETCL ............................................................... 121

Table 94: Depreciation approved by the Commission .......................................................... 122

Table 95: Interest expenses as submitted by MSETCL ........................................................ 123

Table 96: Interest on long term loans approved by the Commission ................................... 124

Table 97: Comparison of 1/12th

of book value of stores as submitted by MSETCL ............ 125

Table 98: Interest on working capital as submitted by MSETCL ........................................ 126

Table 99: Interest on working capital as approved by the Commission ............................... 127

Table 100: Contribution to Contingency Reserves submitted by MSETCL ........................ 127

Table 101: Contribution to contingency reserves as approved by the Commission ............. 127

Table 102: Return on Equity as submitted by MSETCL ...................................................... 128

Table 103: Return on equity as approved by the Commission ............................................. 129

Table 104: Income tax calculation as submitted by MSETCL ............................................. 129

Table 105: Income tax approved by the Commission .......................................................... 130

Table 106: Non-Tariff income as submitted by MSETCL ................................................... 133

Table 107: Non-Tariff income as approved by the Commission .......................................... 134

Table 108: Income from wheeling charges to be received from Goa and Dadra Nagar as

submitted by MSETCL ......................................................................................................... 134

Table 109: Income from wheeling charges to be received from Goa and Dadra Nagar as

approved by the Commission ................................................................................................ 134

Table 110: ARR of MSETCL approved by the Commission for MYT Second Control

Period.....................................................................................................................................135

Table 111: Uncontrollable A&G expenses submitted by MSETCL for FY 2011-12 .......... 139


Control Period


List of Abbreviations

A&G Administrative and General

APR Annual Performance Review

ARR Aggregate Revenue Requirement

ATE Appellate Tribunal for Electricity

BSES BSES Limited (now known as Reliance Infrastructure Limited)

Commission/MERC Maharashtra Electricity Regulatory Commission

CPI Consumer Price Index

Capex Capital Expenditure

CWIP Capital Work In Progress

DPR Detailed Project Report

EA 2003 Electricity Act, 2003

EHV Extra High Voltage

GET Graduate Engineer Trainee

GFA Gross Fixed Assets

InSTS Intra-State Transmission System

IWC Interest on working capital

IT Income Tax

kV Kilo Volt

kW Kilo Watt

LILO Loop In Loop Out

MSETCL Maharashtra State Electricity Transmission Company Limited

MYT Multi Year Tariff

O&M Operation & Maintenance

PLR Prime Lending Rate

PBT Profit Before Tax

R&M Repair & Maintenance

RoE Return on Equity

SBI State Bank of India

STU State Transmission Utility

TSU Transmission System Utility

TVS Technical Validation Session

WPI Wholesale Price Index


Control Period


1. INTRODUCTION

1.1. Background

1.1.1. Maharashtra State Electricity Transmission Company Limited is a company formed

under the Government of Maharashtra General Resolution No. ELA-

1003/P.K.8588/Bhag-2/Urja-5 dated 24 January, 2005 with effect from 6 June, 2005

according to the provisions envisaged in [Part XIII] of the Electricity Act, 2003 (EA

2003). MSETCL is registered as a company under the Companies Act, 1956 with

the Registrar of Companies, Mumbai, having Certificate of Incorporation No.

U40109 MH 2005 PLC 153646 dated 31 May, 2005.

1.1.2. The Provisional Transfer Scheme was notified under Section 131 (5) (g) of the EA

2003 on 6 June, 2005, which resulted in the creation of following four successor

companies and MSEB Residual Company from the erstwhile Maharashtra State

Electricity Board, namely,

a. MSEB Holding Company Limited;

b. Maharashtra State Power Generation Company Limited;

c. Maharashtra State Electricity Transmission Company Limited; and

d. Maharashtra State Electricity Distribution Company Limited.

1.1.3. Maharashtra State Electricity Transmission Company Limited, the Petitioner, is in

the business of transmission of electricity in the State of Maharashtra, and has been

notified as the State Transmission Utility as per Section 39 of EA 2003.

1.1.4. In compliance of directions of the Commission in the Order dated 11 January, 2013

in Case No. 137 of 2011 (Order on Business Plan for the Second Control Period),

the Petitioner has submitted this Petition seeking approval of Truing up for FY

2011-12, Annual Performance Review for FY 2012-13 and determination of

Aggregate revenue requirement for FY 2013-14 to FY 2015-16. In addition, the

Petitioner has also sought for additional recovery due to impact of disallowed

capitalisation for past years.

1.1.5. The Petition for impact of disallowed capitalisation, Truing up for FY 2011-12 and


Control Period


Annual Performance Review of FY 2012-13 has been filed under the provisions of

MERC (Terms and Conditions of Tariff) Regulations, 2005 and the Petition for

determination of Aggregate Revenue Requirement for the Second Control Period

from FY 2013-14 to FY 2015-16 has been filed under the provisions of MERC

(Multi Year Tariff) Regulations, 2011.

1.1.6. For the sake of brevity, the following abbreviation will be used in this Order

henceforth.

a. Maharashtra Electricity Regulatory Commission: MERC or The

Commission;

b. Maharashtra State Electricity Board: MSEB

c. Maharashtra State Electricity Transmission Company Limited: MSETCL;

d. State Transmission Utility: STU;

e. MERC (Terms and Conditions of Tariff) Regulations, 2005: Tariff

Regulations, 2005;

f. MERC (Multi Year Tariff) Regulations, 2011: Tariff Regulations, 2011;

g. Annual Performance Review: APR; and

h. Aggregate Revenue Requirement: ARR.

1.2. Organisation of the Order

1.2.1. This Order is organised in the following eight sections:

a. Section 1 provides a brief of the regulatory process undertaken by the

Commission.

b. Section 2 deals with the various objections / suggestions submitted in

writing as well as during the Public Hearing before the Commission. The

objections/suggestions have been summarised, followed by the response of

MSETCL and the rulings of the Commission on each of the issues.

c. Section 3 deals with the impact of disallowed capitalisation of FY 2007-08,

FY 2008-09 and FY 2010-11.


Control Period


d. Section 4 deals with the Truing up of expenses and revenue of MSETCL

for FY 2011-12.

e. Section 5 deals with APR of MSETCL for FY 2012-13.

f. Section 6 deals with determination of ARR of MSETCL for the Second

Control Period FY 2013-14 to FY 2015-16 and revenue gap/ surplus to be

recovered.

g. Section 7 deals with MSETCL’s compliance of the directives issued by the

Commission in the previous Order’s.

h. Section 8 deals with the applicability of the present Order.

1.3. Tariff Regulations and Control Period

1.3.1. First Control Period: The Commission had specified the First Control Period in

Maharashtra to be a period of three (3) years from FY 2006-07 till FY 2008-09,

through notification of the Tariff Regulations, 2005 on 23 August, 2005. However,

upon receipt of applications from utilities in Maharashtra, the Commission passed

an Order on 20 December, 2005 re-notifying the First Control Period from FY

2007-08 till FY 2009-10. The Orders passed by the Commission in the First Control

Period for MSETCL under Tariff Regulations, 2005 are listed below:

a. ARR Order for FY 2005-06 and FY 2006-07: Order dated 28 June, 2006 in

Case No. 49 of 2005.

b. Review Order issued on 19 October, 2006 in Case No. 21 of 2006.

c. MYT Order for FY 2007-08 to FY 2009-10: Order dated 2 April, 2007 in

Case No. 67 of 2006.

d. APR Order for FY 2007-08 and ARR for FY 2008-09: Order dated 31

May, 2008 in Case No. 70 of 2007.

e. Review Order issued on 12 September, 2008 in Case No. 40 of 2008.

f. APR for FY 2008-09 and ARR for FY 2009-10: Order dated 28 May, 2009

in Case No. 114 of 2008.


Control Period


g. True-up of FY 2008-09, APR for FY 2009-10 and ARR for FY 2010-11:

Order dated 10 September, 2010 in Case No. 103 of 2009.

h. Review Order issued on 30 November, 2010 in Case No. 73 of 2010.

i. Order on additional expenses; dated 30 March, 2011 in Case No. 21 of

2011.

j. True-up for FY 2009-10, APR for FY 2010-11: Order dated 29 December,

2011 in Case No. 102 of 2011.

k. Review Order dated 24 December, 2012 in Case No. 17 of 2012.

l. True up for FY 2010-11, ARR for FY 2011-12 and FY 2012-13: Order

dated 18 May, 2012 in Case No. 169 of 2011.

m. Review Order dated 14 December, 2012 in Case No. 106 of 2012.

1.3.2. Second Control Period: On 4 February, 2011, the Commission notified the MYT

Regulations, 2011. In these Regulations the Commission specified the Second

Control Period for Tariff determination to be a period of five (5) years starting from

FY 2011-12 till FY 2015-16. However, upon receipt of an application from

MSETCL in Case No. 62 of 2011, the Commission had passed an Order dated 3

November, 2011 granting exemption to MSETCL from determination of Tariff

under the MYT Regulations, 2011 for a period of two (2) years till 31 March, 2013.

The MYT Regulations, 2011 were amended vide notification of MERC (Multi Year

Tariff) (First Amendment) Regulations, 2011 on 21 October, 2011. In the said

amendment, the Commission specified that the generating companies and licensees

who have been exempted for certain periods from determination of Tariff under the

MYT Regulations, 2011, shall continue to file annual applications for approval of

ARR and Tariff for the period of exemption under the Tariff Regulations, 2005.

Apart from other relevant amendments, the Commission also included “transitory

provisions” in these Regulations. The transitory provisions dealt with the issue of

continuance of Tariff Order issued by the Commission for the year ending 31

March, 2011 and other provisions of Business Plan, Tariff, etc.


Control Period


1.4. Petition and prayers of the Petitioner

1.4.1. MSETCL submitted the present Petition on 18 March, 2013 based on actual audited

expenditure for FY 2011-12, estimated expenditure for FY 2012-13, and forecast of

expenses for the Second Control Period from FY 2013-14 to FY 2015-16.

1.4.2. The Commission, vide email dated 25 March, 2013, forwarded the data gaps and

information requirement identified in the Petition filed by MSETCL. Subsequently,

the Commission scheduled the Technical Validation Session (TVS) on 2 April,

2013. The list of persons who participated in the TVS is provided in Appendix-1.

1.4.3. Thereafter, MSETCL filed a revised Petition on 23 April, 2013 after some

amendments in the Petition along with replies to the queries of the Commission. In

the meantime, the Commission had issued the Tariff Order for the Second Control

Period for Intra State Transmission System (InSTS) on 13 May, 2013 in Case No.

56 of 2013. It was observed after scrutiny of MSETCL’s revised Petition that the

system demand and revenue estimated by MSETCL were different as compared to

the Tariff Order for the Second Control Period. Therefore, the Commission directed

MSETCL vide Letter No. MERC/TARIFF/2013-14/0743 dated 27 June, 2013 to

submit a revised Petition incorporating demand figures and revenue estimate as per

the InSTS Tariff Order dated 13 May, 2013 in Case No. 56 of 2013.

1.4.4. Accordingly, in compliance with the above direction, MSETCL submitted the

revised Petition on 15 July, 2013, which was considered by the Commission for

admittance and further processing.

1.4.5. The prayers of MSETCL in the Petition are as follows:-

“

a. Admit this Multi Year Tariff Petition

b. Allow the recovery of impact of disallowed capitalisation for past years

along with the appropriate carrying cost and allow to recover the same with

ARR for FY 2013-14

c. Allow true-up of expenses of FY 2011-12 based on the Audited Accounts and

approve the Revenue gap/surplus arrived after duly sharing the efficiency

gain with the transmission system users of MSETCL according to the


Control Period


principle of the Commission set out in MERC (Terms and Conditions of

Tariff) Regulations, 2005

d. Approve the provisional true-up for FY 2012-13 to the extent claimed by

MSETCL in accordance with the submissions and rationale given in this

Petition

e. Approve the ARR forecast for FY 2013-14 to FY 2015-16 as provided in the

Petition

f. Determine the Tariff for FY 2013-14 to FY 2015-16 that would help in

recovery of consolidated ARR including revenue gap/surplus of each year of

the Control Period

g. Approve the deviation in the parameters prescribed in the MYT Regulations,

2011 as sought in the Petition

h. Provide the workable excel model used by the Hon'ble Commission for

approval of the above true up and ARR Requirement of MSETCL

i. Condone any shortcomings/deficiencies and allow MSETCL to submit

additional information/data at a later stage as may be required.”

1.5. Admission of Petition and Public Hearing process

1.5.1. The Commission admitted the Petition vide letter dated 17 September, 2013 and

directed MSETCL to publish its application in accordance with Section 64 of the

EA 2003, in the prescribed abridged form and manner, to ensure adequate public

participation. The Commission also directed MSETCL to reply expeditiously to all

the suggestions and comments received from stakeholders on its Petition.

1.5.2. MSETCL issued a public notice in newspapers inviting comments/suggestions from

stakeholders on its Petition. The notice was published in English in Times of India

and DNA on 23 September, 2013 and in Marathi in Loksatta and Punya Nagari on

23 September, 2013. The copies of the Petition and its summary were made

available for inspection/purchase to members of the public at MSETCL’s offices

and website (www.mahatransco.in). The public notice and executive summary of

the Petition were also made available on the website of the Commission

(www.mercindia.org.in, www.merc.gov.in) in a downloadable format.

http://www.mercindia.org.in/


Control Period


1.5.3. The Commission received written objections regarding issues related to

transmission losses, approval of disallowed capitalisation, O&M expenses, etc. The

Commission held a Public Hearing on 29 October, 2013 in the Commission’s office.

The list of consumer representative and other stakeholders, who participated in the

Public Hearing, is provided in Appendix 2.

1.5.4. The Commission ensured that the due process contemplated under law to ensure

transparency and public participation was followed meticulously at every stage and

adequate opportunity was given to all the persons concerned to express their views

in the matter.


Control Period


2. OBJECTIONS RECEIVED, MSETCL’S RESPONSE AND THE

COMMISSION’S RULING

2.1. Transmission Losses and Efficiency

Suggestion/ Objection

2.1.1. Shri George John submitted that the transmission losses projected by MSETCL

were showing an upward trend from 4.17% in FY 2011-12 to 4.85% in FY 2012-13

onwards, even though there has been significant advancement in transmission

technology. He highlighted the fact that BEST, a distribution licensee has reported

distribution loss of 7.94% in FY10-11 which subsequently reduced to 7.56% in

FY11-12 and 7.4% in FY12-13. In this context, Shri John submitted that MSETCL

should target to reduce its transmission loss level to at least 3% in the short term and

to around 2% in the long term, as technology advances. He also requested MSETCL

to provide calculations based on which they arrived at transmission loss of 4.71%

and submit data on MUs received in each zone and MUs injected at corresponding

injection points, to quantify the energy lost in the system.

2.1.2. Shri John also submitted that MSETCL should be given power to monitor, cross

examine records, energy readings at transmission and receiving ends of even other

transmission entities to make each one responsible for achieving higher

transmission efficiency.

MSETCL’s response

2.1.3. MSETCL submitted that it has provided all the details pertaining to transmission

loss in Section 4.2.2.1 of its Petition. It further stated that though the Commission

had approved intra-state loss of 4.85% in FY 2010-11, it managed to keep the actual

loss incurred during FY 2010-11 to 4.31%. Despite the growing volume of

electricity handled by its network, the level of losses has been kept close to

normative loss level approved by the Commission in previous Order. The

decreasing trend of transmission loss is given in table below:


Control Period


Table 1: Transmission Losses for Intra-State Transmission System submitted by

MSETCL

S. No Year Energy Input

(MU)

Energy Output

(MU)

Transmission

Loss

1 FY 2008-09 95,477.956 90,815.816 4.88%

2 FY 2009-10 1,01,872.316 97,195.234 4.59%

3 FY 2010-11 1,07,810.082 1,03,162.694 4.31%

4 FY 2011-12 1,17,534.520 1,12,634.492 4.17%

2.1.4. MSETCL submitted that its transmission loss is 4.17% and not 4.71% and

submitted the detailed calculations on Page No. 109 of its Petition. For FY 2011-12,

it calculated transmission loss based on average annual energy wheeled by its

network (i/p and o/p) as follows:

Energy Input (Wheeling Units) = 1,17,536 MU ...(a)

Energy Output (Wheeling Units) = 1,12,633 MU ...(b)

Transmission Loss = [(a)-(b)]/(a)*100 = 4.17%

2.1.5. MSETCL further claimed that it has reduced transmission losses from 5.94% in FY

2006-07 to 4.31% in FY 2010-11.

2.1.6. MSETCL submitted that the Commission has engaged Central Power Research

Institute (CPRI) to carry load flow analysis with regard to the transmission loss

level in MSETCL network and arrive at scientifically optimum level of loss. On the

basis of data collated and analysis prepared by CPRI, a transmission loss level of

4.445% in the MSETCL network for FY 2004-05 has been arrived at.

2.1.7. As for the data asked by Shri George John for each zone, MSETCL replied that the

zones belong to MSEDCL and it cannot provide any data on the same.

Commission’s ruling

2.1.8. The Commission on verification of transmission loss figures submitted by

MSTECL found that it is in variance with the transmission loss figures made

available by MSLDC. In this regard, the Commission directed MSETCL to

submit the actual transmission loss figures against the transmission loss figure

of 4.25% for FY 2011-12 provided by MSLDC. MSETCL submitted that due

to revision in the energy accounting by MSEDCL circle offices and other

distribution utilities, the transmission loss numbers have been revised by

SLDC, Kalwa. Therefore, the transmission loss of InSTS has been revised as


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4.25% and computed as below:

Table 2: Revised Transmission Loss of InSTS for FY 2011-12 submitted by MSETCL

S.

No

Year Energy Input

(MU)

Energy Output

(MU) Transmission Loss

1 FY 2011-12 1,17,555.044 1,12,561.678 4.25%

2.1.9. Additionally, the Commission appreciated concern of the objectors on

transmission losses of MSETCL. However, the Commission understands that a

transmission licensee has transmission losses majorly due to technical losses

and even a fraction of reduction in transmission losses require huge capital

investment from the transmission Licensee. Such high capital investment will

in turn increase transmission Tariff. Thus, can be undertaken after duly

considering cost benefit analysis of reduction in transmission losses vis-a-vis

increase in Tariff. The Commission directs MSETCL to undertake a detailed

study to determine feasible options for reduction of losses in its transmission

network including technical solutions and best practices/benchmarking of such

solutions in other States. The study report shall be submitted to the

Commission within a period of one year from date of issue of the present

Order.

2.2. Aggregate Revenue Requirement

Suggestion/Objection

2.2.1. Shri George John requested MSETCL to provide details of electricity transmitted

(in MUs), considered for computation of transmission Tariff per unit. He provided a

table which is reproduced below and requested MSETCL to fill the row C with

information on MUs considered. Further, he requested MSETCL to explain the

variance between ARR required from Tariff (Row A) and ARR of MSETCL (Row

B) as given in the table below:


Control Period


Table 3: Query on ARR submitted by Shri George John

S. No Particulars FY

2012-13

FY

2013-14

FY

2014-15

FY

2015-16

A ARR reqd. from Tariff(in Rs crore

Table 3-D) 2,955 4,275 4,963 5,652

B ARR of MSETCL (Rs crore) 3,553 5,603 4,923 5,781

(In present MYT Table 9.1)

C Pl indicate MUs for which ARR sought - - - -

D Transmission Tariff

i. Rs/kW 213 320 265 285

ii. Rs/ kWh 0.29 0.43 0.36 0.36

2.2.2. Shri Ravindra Chavan, MLA submitted that increase in infrastructure costs have led

to increase in revenue requirement which ultimately leads to hike in Tariff. The

ARR for MSETCL has doubled from FY 2011-12 to FY 2015-16. Such high

increase has defeated the purpose of EA 2003 and Tariff Policy. Operations and

maintenance expenses, administrative and general expenses, audit and legal fees

have also been increasing every year and no proper explanation has been provided

for the same in the Petition.

2.2.3. Shri Ravindra Chavan also submitted that "Other Expenses" claimed by MSETCL

should not be allowed unless they are supported by substantial proof.

2.2.4. Smt. Poornima Mepani claimed that any increase in transmission charges by

MSETCL will be borne by consumers of the distribution company, and highest

impact will be on those consumers who are cross-subsidizing other consumers.

MSETCL’s response

2.2.5. MSETCL submitted that Row A corresponds to ARR as approved by the

Commission in its Business Plan Order dated 11 January, 2013 in Case No. 137 of

2011 and Row B corresponds to ARR submitted in the present Petition. The

variation for FY 2012-13 and for period from FY 2012-13 to FY 2015-16, is

explained in detailed manner in Section 5 and Section 6 of the Petition respectively.

For figures sought in Rows C and D for FY 2012-13 and period from FY 2013-14

to FY 2015-16, MSETCL relied on the InSTS Tariff Order dated 21 May, 2012 in

Case No. 51 of 2012 and Order dated 13 May, 2013 in Case No. 56 of 2013

respectively.

2.2.6. MSETCL submitted that for O&M expenses of FY 2011-12, it has provided detailed


Control Period


explanation and reasons in the Petition and have claimed the same on the basis of

audited annual accounts. Further, the same has been projected in accordance with

the norms specified in the MYT Regulations, 2011.

2.2.7. MSETCL submitted that "Other Expenses" claimed in the Petition for FY 2011-12

have been considered based on audited annual accounts for the year. Also, it

submitted that it has provided all the details and rationale of the expenses and

revenue in the Petition.

2.2.8. In response to the query submitted by Smt. Poornima Mepani, MSETCL stated that

it has submitted its MYT Petition and claimed the revenue and expenses based on

the audited annual accounts and in accordance with the principles laid down under

MERC Tariff Regulations, 2005 for period up to FY 2012-13 and MYT

Regulations, 2011 for the Second Control Period from FY 2013-14 to FY 2015-16.

Further, the details and rationale of all expenses and revenue are provided in the

Petition as sought by the Commission.


2.2.9. The Commission has verified that MSETCL provided details of MUs from the

InSTS Order dated 13 May, 2013 in Case No. 56 of 2013. The Commission has

conducted prudence check based on audited annual accounts of FY 2011-12

and approved expenses and ARR for FY 2011-12 and FY 2012-13 as per

MERC Tariff Regulations, 2005. The expenses and ARR for Second Control

Period from FY 2013-14 to FY 2015-16 have been approved as per MYT

Regulations, 2011. The analysis conducted by the Commission for approving

expenses for FY 2011-12, FY 2012-13 and Second Control Period from FY

2013-14 to FY 2015-16 is detailed in Section 4, 5 and 6 of the present Order,

respectively.

2.3. Public process


2.3.1. Smt. Poornima Mepani submitted that the time granted to citizens to revert with

objections and suggestions is very short.

2.3.2. Shri Ravindra Chavan raised objection that Public Hearing for MSETCL is

conducted only in one place, while, for MSEDCL, it is conducted in five different


Control Period


places in Maharashtra. Further, Public Hearing should be conducted for every issue

due to which Tariff may increase and burden is likely to be passed on to the

consumers. Also, the Petition filed by MSETCL is not written in lucid language.

MSETCL's response

2.3.3. MSETCL submitted that the time given for submitting comments/suggestions on the

Petition is as per the Commission’s directions.

2.3.4. As regards locations where Public Hearing is to be conducted, MSETCL submitted

that it is not under the purview of MSETCL and hence, MSETCL can’t provide any

explanation for the same. MSETCL also submitted that the Petition is written in

simple language.


2.3.5. The Commission conducts process of admittance of Petition and Public

Hearing in accordance with MERC (Conduct of Business) Regulations, 2004.

The same has been followed in processing of present Petition filed by

MSETCL.

2.3.6. Further, the Commission provided 28 days to the consumers for providing

objection/suggestions on the said Petition. The Commission opines that a time

period of three weeks is sufficient for responding on the Petition keeping in

mind that the total process is to be undertaken expeditiously and within a

period of 120 days from the date of admittance of the Petition.

2.3.7. Further, the Commission has decided to hold the Public Hearing of MSETCL

at one place unlike Public Hearing held at six places for MSEDCL, considering

the nature of the Petition under consideration.

2.4. Cost of gas


2.4.1. Smt. Poornima Mepani requested for a copy on the deal wherein Ras Laffan has

agreed to sell gas to Indian Petronet LNG at around $2 per unit for 25 years. She

requested MSEDCL to enforce the deal and also suggested that MSEDCL could

enter into a similar deal to overcome the increase in costs and Tariff due to the

increasing cost of gas. Further, MSEDCL should clarify if Ras Gas was being paid


Control Period


in excess of the contracted price and/or for a quality inferior to the contracted one

and if this money will come back to India from Qatar as inward FDI or QFI

investment.

MSETCL's response

2.4.2. MSETCL replied that the objection is not related to the scope of current Petition,

i.e., True up of FY 2011-12, APR of FY 2012-13 and MYT Petition from FY 2013-

14 to FY 2015-16.


2.4.3. The Commission highlights that objection raised doesn’t pertain to MSETCL’s

Petition and cannot be considered under the present proceedings.

2.5. Compensation for land and Non-compliance of Provisions of Acts and

Regulations


2.5.1. Advocate Pawan Uttarwar claimed that MSETCL did not seek consent from the

affected land owner or the District Collector, as required by the provisions of the

EA 2003, and Maharashtra Electricity Work of Licensees Rules, 2012, before

carrying out work of its high tension network in Aurangabad district. MSETCL

neither follows any acquisition procedure nor pays appropriate compensation to the

affected persons for the losses suffered by them. Also, merely on the basis of power

granted under Telegraph Authority, Licensees cannot dispose land owners. He

further submitted that MSETCL has not mentioned any provision for compensation

paid to the land owners in the present Petition, which should have reflected the

number of landowners affected by high tension transmission works. MSETCL does

not make application under Section 68 of the EA 2003 and also do not take

permission from the Forest Department to cut down trees.

2.5.2. Advocate Uttarwar further submitted that MSETCL has not deposited the amount of

compensation awarded by the District Collector under the Powers of the EA 2003

and the provisions of the Maharashtra Electricity Work of Licensees Rules, 2012.

MSETCL is liable to be penalized under the non-compliance of the Orders passed

by the District Collector of Aurangabad under the EA 2003 and the Provisions of

the Maharashtra Electricity Work of Licensees Rules, 2012. Cases of affected land


Control Period


owners have been presented before the Commission, but they have not been treated

seriously. It is necessary for the Commission to confirm the compensation paid by

MSETCL to the land owners over the years and its adjustment in the expenses

shown in the present ARR Petition. Further, the Commission has power to direct

and penalize MSETCL.

2.5.3. Shri Ravindra Chavan also raised objection on the same issues.

MSETCL's response

2.5.4. MSETCL submitted that while executing the work of EHV lines, preliminary

survey is carried out such that there is a bare minimum loss to the cultivator and no

line is laid without intimation to the cultivators. Also, according to the Section 164

of the EA 2003, the powers conferred upon Indian Telegraph Authority under

Indian Telegraph Act,1885, have been conferred to MSETCL by Government of

Maharashtra vide Order no. Sankirn-06/C.No.312/Energy-4 dated 24 August, 2006.

Whilst staying within the powers received vide the Order mentioned above,

technically competent route is selected and EHV towers as well as lines are erected.

2.5.5. Further, farmers are free to take crops in the other area of the farm except the land

under the tower. Also, the compensation for damage suffered during the erection of

towers and lines is decided on the rules mentioned below:

a. The compensation for damage to standing crops/fruit bearing trees/other trees is

paid based on the valuation received from revenue/ agriculture/forest

departments of GoM.

b. Based on the Order no. Sankirn-0210/C.No.29/Energy-4 dated 1 November,

2010 issued by GoM, the compensation for the land occupied by EHV tower is

paid on the basis of the classification of land and as per the rates under ready

reckoner of the respective region.

2.5.6. MSETCL submitted that it is not violating Section 67 & 68 of EA 2003 and

Maharashtra Electricity Work of Licensees Rules, 2012 and it takes necessary

permission from various authorities such as forest, railway, MIDC, Revenue

Authority, etc., before laying lines. The compensation paid for the losses while

laying down EHV lines is included in the cost of project.


Control Period


2.5.7. MSETCL submitted that as regards the compensation for crops and trees for

Aurangabad zone, it has paid the compensation to the land owner and advance

payment towards land compensation has also been paid to some of the land owners.

Moreover, payment towards land compensation has been kept on hold based on the

instructions from the Chief Legal Adviser of MSETCL. Also, the land

compensation Orders issued by the District Collector, Aurangabad has various

discrepancies:

a. Land valuations are not as per Govt. Resolution No. Sankirn/ 0210/Case No.

29/Energy - 4 dated 1 November, 2010.

b. Rates taken for the land valuation are non-agriculture land rates which are very

much on the higher side.

c. Land compensation Orders are issued for those farmers which are not eligible

for the compensation, etc.

2.5.8. The Chief Legal Adviser, MSETCL visited Collector office Aurangabad on 22

October, 2013. As per discussion with the Collector, Aurangabad, Chief Legal

Adviser had instructed MSETCL to go for revision of the land compensation Orders

issued by Collector Aurangabad. The revision of the land compensation Order is

under process and hence, the payment is kept on hold. With regards to Regulations

and Rules for computation of losses suffered by land owners, a detailed procedure

regarding land compensation is described in Govt. Resolution No. Sankirn/

0210/Case No. 29/ Energy - 4 dated 1 November, 2010.

2.5.9. MSETCL submitted that the Maharashtra Electricity Work of Licensees Rules, 2012

is not applicable for MSETCL. Rule 3 sub-rule 4 of the Maharashtra Electricity

Work of Licensees Rules, 2012 has an overriding effect on the entire Rule. Also,

similar Judgment is passed by Hon’ble Jharkhand High Court, Case No. AIR 2008

JHAR 34 2007(2) BLJR 1798 Ajay Munjal v/s PGCIL regarding Electricity Work

of Licensees Rules, 2006.

2.5.10. MSTECL submitted that it has never denied land compensation and its social

responsibility. Also, it is carrying out constant follow up to obtain the corrected land

compensation Order and to make sure it receives accurate Orders in future.


Control Period



2.5.11. The Commission has noted the response of MSETCL and in this regard views

the objection doesn’t pertain to the present Tariff Petition. Therefore, this

issue has not been considered in the present proceedings. However, the

expenses of the MSETCL has been scrutinised and only prudent cost is allowed

to be pass through.

2.6. Capitalisation and Disallowed Capitalisation


2.6.1. Shri Ravindra Chavan submitted that MSETCL cannot seek review of the

disallowed capitalisation for the past few years to cover its revenue gap. Once the

Commission has passed it, it can be reviewed only under prescribed limitations and

on basis of permissible grounds under the law such as discovery of new and

important matters of evidence, mistakes or error apparent on the face of the record

or any other sufficient reason. Further, the prayer clause submitted by MSETCL in

the present Petition is vague and does not specifically pray to allow review of Tariff

Order. Further, the claim is not supported by sufficient documents. MSETCL should

have filed a separate review Petition under proper procedure prescribed by law.

2.6.2. The capitalisation approved to MSETCL is Rs 3874.62 crore, which is high and

does not have any rational.

MSETCL's response

2.6.3. MSETCL submitted that it has provided detailed justification for claims on

expenses incurred in the previous years. Also, it has not sought the review of the

Orders; rather, it has sought Truing up to the extent for which justification has been

submitted. Further, MSETCL submitted that the Commission in its Order dated 28

May, 2009 in Case No. 114 of 2008 has allowed those schemes which were

disallowed in the past. The impact of disallowed capitalisation on ARR may be

considered for the respective year and for subsequent years as well. Hence,

MSETCL submitted that its prayer to allow recovery of impact of disallowed

capitalisation along with the present ARR for FY 2013-14 is not defective.

2.6.4. MSETCL submitted that it has considered capitalisation as approved by the

Commission in its Order dated 18 May, 2012 in Case No. 169 of 2011.


Control Period


Commission's Ruling

2.6.5. The Commission has conducted detailed scrutiny of the claims submitted by

MSETCL on account of disallowed capitalisation of past years and has

accordingly, considered its impact on ARR of previous years. The details of

scrutiny and analysis done by the Commission and the decision taken with

regards to allowance of disallowed capitalisation of previous years is elucidated

in Section 3 of this Order.

2.7. Use of Contractors/ Private Companies/ Agents

Suggestion/Objections

2.7.1. Shri Ravindra Chavan submitted that MSETCL should not use agents/ contractors

and private companies for laying down transmission lines and should be able to

execute all infrastructure development work using its own employees, as it spends a

large amount of money on training for employees. Also, agents and contractors

work for profits, which increases project costs and thus Tariff every year.

MSETCL's inefficiency in carrying out infrastructure/ construction defeats the

purpose of the EA 2003 and is burdening the consumers of Maharashtra. The

Commission should grant Licence to Licensees who are capable of completing

construction works for transmission projects. Further, he claimed that projects are

not competitively bid and corruption exists in selecting contractors and agents.

Directions should be provided to MSETCL to reduce dependency on

agents/contractors.

MSETCL's response

2.7.2. MSETCL submitted that post trifurcation of MSEB, there has been increase in

generation and load demand leading to increase in the number of transmission

projects to be executed. This increase is temporary and it is not economical to

recruit new staff for the same. Further, executing projects require placing Orders to

suppliers, procuring major and minor materials, managing supplier period of each

supplier, etc. In view of these, turnkey contracts are provided to expedite the

process. Further, reduction in transmission loss trajectory and increase in

transmission system availability even when demand is growing and network is

expanding, is an indication of MSETCL’s efforts to expand its network while

reduce expenses.


Control Period


Commission's Ruling

2.7.3. The Commission conducts thorough scrutiny of the capital cost and expenses

submitted by MSETCL before approving them. Further, wherever necessary,

the Commission disallows expenditure if found imprudent. Employing

agents/contractors or using own employees for carrying out construction

activities is a decision which rests with the utility and the Commission plays no

role in enforcing the same on the utility. However, as a Regulatory body, the

Commission ensures that only prudent cost is passed on to the consumers by

way of Tariff.

2.8. Quality control


2.8.1. Shri Ravindra Chavan submitted that use of low quality transformer and materials in

the transmission line causes voltage fluctuation in Dombivli area. This causes

damages to electrical equipments, thereby, leading to financial loss to the

consumers. The Commission must establish a team to ensure quality control of the

transmission infrastructure and penalise MSETCL for violating its duty to provide

continuous quality power supply. Further, MSETCL has failed to maintain the

safety standards which are in violation of the Commission’s Order dated 11

January, 2013 in Case No. 137 of 2011. Further, the Commission should direct

MSETCL to construct rooms around the transformers as constructed by BEST for

ensuring safety of people. Also, MSETCL should provide data on death caused due

to electric shocks and lack of safety standards implemented by MSETCL. Further,

he requested data on number of deaths caused due to electrocution in Dombivli in

last five years and the compensation paid to the family of the victim by MSETCL.

MSETCL’s response

2.8.2. MSETCL submitted that it has planned various schemes to augment the network in

Dombivli, to provide better quality of electricity to Dombivli area.

2.8.3. Regarding compliance of safety norms, MSETCL submitted that it complies with

the provisions of CEA (Safety requirements for construction, operation and

maintenance of electrical plants and electrical lines) Regulations, 2011. MSETCL

also submitted its safety manual in its response to the query on non-compliance of


Control Period


safety norms.

2.8.4. MSETCL submitted that no deaths have been caused due to electrocution at

Dombivli in the last five years. Also, the substations are surrounded by compound

wall to prevent trespassing. MSETCL submitted the following table showing the

details of accidents:

Table 4: Abstract of Accidents submitted by MSETCL

Year Total Fatal

Non-

Fatal

Fatal Non-Fatal

Dept. Outsider Dept. Outsider

FY 2005-06 25 3 22 1 2 19 3

FY 2006-07 23 6 17 4 2 16 1

FY 2007-08 25 4 21 1 3 17 4

FY 2008-09 21 7 14 3 4 10 4

FY 2009-10 32 11 21 0 11 12 9

FY 2010-11 23 4 19 0 4 15 4

FY 2011-12 17 7 10 4 3 9 1

FY 2012-13 32 21 11 9 12 2 9


2.8.5. The safety standards are necessary to be complied by MSETCL and shall be in

accordance with the Central Electricity Authority (Safety requirements for

Construction, Operation and Maintenance of Electrical Plants and Electric

Lines) Regulations, 2011 and Central Electricity Authority (Measures relating

to Safety and Electricity Supply) Regulations, 2010.

2.8.6. Additionally, from the information provided on accidents over the past years,

it can be observed that there has been increase in number of accidents in FY

2012-13. The Commission directs MSETCL to take appropriate steps to tackle

this issue on priority basis.


Control Period


3. IMPACT OF DISALLOWED CAPITALISATION OF ASSETS

FOR PREVIOUS YEARS

3.1. Background

3.1.1. MSETCL submitted that in its previous True up Orders for FY 2007-08, FY 2008-

09 and FY 2010-11, the Commission had disallowed certain amount of

capitalisation. Certain portion of the disallowed capitalisation is now claimed in the

present Petition by MSETCL.

3.1.2. MSETCL submitted that it has calculated the impact of disallowed capitalisation, to

the extent claimed in the present Petition, on depreciation, interest on long term

loan, interest on working capital, return on equity, contribution to contingency

reserve and incentive for higher availability over and above norm. Further,

MSETCL has claimed this impact on ARR items from the date of capitalisation of

the assets.

3.1.3. Details of MSETCL’s claims on disallowed capitalisation of assets for previous

years are provided in the following sections.

3.2. Impact of Disallowed Capitalisation of Assets during FY 2007-08

3.2.1. MSETCL submitted that the Commission in its Order dated 28 May, 2009 in Case

No. 114 of 2008 and subsequently, in Order dated 10 September, 2010 in Case No.

103 of 2009, approved capitalisation of Rs 513.88 crore vis-a-vis Rs 867.14 crore

claimed for FY 2007-08. MSETCL also mentioned that the Commission in its Order

dated 28 May, 2009 in Case No. 114 of 2008 restricted the capitalisation for FY

2007-08 due to absence of documentary evidence confirming purpose and

achievement of the objective of the capex schemes. Therefore, the Commission

directed MSETCL to submit necessary justification for the same and also asked

MSETCL to obtain the Commission’s approval for non-DPR schemes approved

earlier by the MSEB.

3.2.2. MSETCL submitted that subsequent to the Commission’s direction, it had clubbed

certain non-DPR schemes to form DPR schemes; and submitted 63 such DPR

schemes with estimated capital expenditure of Rs 1699 crore for post facto In-


Control Period


principle approval of the Commission. MSETCL submitted that the Commission

had granted post facto In-principle approval for such schemes amounting to Rs

1268.92 crore. Thereafter, MSETCL submitted additional 18 DPR schemes from

MSEB period with estimated capital expenditure of Rs 463.38 crore for post-facto

In-principle approval of the Commission. MSETCL submitted that the Commission

granted post facto approval for these schemes as well.

3.2.3. MSETCL submitted the following table summarising the claim on disallowed

capitalisation for FY 2007-08.

Table 5: Claim of Disallowed Capitalisation for FY 2007-08 submitted by

MSETCL (Rs crore)

Particulars

Original

Claim

Final

Claim

Approved in Case No.

114 of 2008 & 103 of

2009

Disallowed

Capitalisation

Claimed

in this

Petition

DPR 197.21 658.54 447.99 210.55 192.50*

Non-DPR 669.93 208.60 65.89 142.71 70.80#

Total 867.14 867.14 513.88 353.26 263.30

*192.50 crore = Rs 104.66 crore +Rs 87.84 crore, where Rs 104.66 crore relate to schemes disallowed due to

non-submission of schemes for post facto approval and Rs 87.84 crore due to non-commissioning (considered in

True up for FY 2008-09)

#Non-DPR considered as 37% of disallowed DPR as per Case No. 114 of 2008

3.2.4. MSETCL requested the Commission to approve the above claim for disallowed

capitalisation for FY 2007-08.

3.2.5. MSETCL further requested the Commission to provide additional ARR due to

approval of disallowed capitalisation for FY 2007-08. MSETCL highlighted that

any increase in ARR will also have an impact on interest on working capital,

sharing of gains and losses and incentive for transmission availability.

3.2.6. MSETCL submitted the following table showing the impact of disallowed

capitalisation on various heads of ARR and claimed the difference between the

previously approved ARR and revised claim of ARR.


Control Period


Table 6: Impact of disallowed capitalisation for FY 2007-08 submitted by

MSETCL (Rs crore)

Particulars

FY 2007-08

Previously

Approved

Revised

Claim* Difference

RoE 387.86 391.54 3.69

Depreciation including AAD 337.68 337.68 0.00

Interest on long-term loan capital 191.21 202.29 11.08

Interest on working capital and on

consumer security deposits 28.31 28.60 0.29

Contribution to contingency reserves 44.83 44.83 0.00

Incentive for higher availability 6.57 6.70 0.13

Total 996.45 1011.64 15.19

*Note: Impact of disallowed capitalisation worked out only for FY 2007-08 and impact of this in subsequent

years have been compounded in respective years by re-computing the opening GFA, loan balance and equity of

respective years.

3.2.7. Therefore, MSETCL claimed for additional ARR of Rs 15.19 crore for FY 2007-08

on account of approval of disallowed capitalisation. The Commission’s analysis of

the above dis-allowed capitalisation and the corresponding impact on ARR has been

outlined in Section 3.6 and Section 3.7 below.

3.3. Impact of Disallowed Capitalisation of Assets during FY 2008-09

3.3.1. MSETCL submitted that the Commission in its Order dated 30 November, 2010 in

Case No. 73 of 2010, approved capitalisation of Rs 553.94 crore for FY 2008-09

vis-a-vis Rs 663.88 crore claimed in the Petition. Further, MSETCL submitted that

following the Commission’s directions, MSETCL clubbed some non-DPR schemes

to form DPR schemes and sought post facto In-principle approval of the

Commission for the same. MSETCL submitted that post facto approval had been

granted to such schemes. In the present Petition, MSETCL requested the

Commission to approve claim of Rs 73.35 crore on disallowed capitalisation for FY

2008-09 as mentioned in the table below:


Control Period


Table 7: Claim on disallowed capitalisation for FY 2008-09 by MSETCL (Rs

crore)

FY 2008-09

Case No. 103 of 2009

Disallowed

Capitalisation

Claimed in

present

Petition* Claimed Approved

DPR approved 380.11 334.02 46.09 46.09

DPR schemes submitted

for approval 126.32 94.55 31.77 7.76

MSEB period 58.33 33.05 25.28 12.70

Non DPR 99.12 92.32 6.80 6.80

Total 663.88 553.94 109.94 73.35

*Balance to be allowed due to post facto approval granted to schemes of non-DPR clubbed into DPR schemes

and also due to commissioning of schemes in pursuance to the direction of the Commission.

3.3.2. Further, MSETCL has re-computed the opening GFA, loan balance and equity of

FY 2008-09 considering the approved disallowed capitalisation of FY 2007-08 and

then calculated the impact on ARR for FY 2008-09 as Rs 43.17 crore. Further,

MSETCL claimed for increase in ARR for FY 2008-09 as given in the table below:

Table 8: Impact of claim on disallowed capitalisation for FY 2008-09 submitted

by MSETCL (Rs crore)

Particulars

FY 2008-09

Approved Revised Claim Difference RoE 397.94 409.34 11.40







Total 946.63 989.80 43.17

3.3.3. The Commission’s analysis of the above disallowed capitalisation and the

corresponding impact on ARR has been outlined in Section 3.6 and Section 3.7

below.

3.4. Impact of Disallowed Capitalisation of Assets for FY 2007-08 and FY 2008-09

in FY 2009-10

3.4.1. MSETCL submitted that in accordance with the claims on disallowed capitalisation

made in for FY 2007-08 and FY 2008-09 on disallowed capitalisation, it has


Control Period


calculated the impact on ARR of FY 2009-10 by re-computing the depreciation on

the revised opening GFA, interest on the revised opening loan balance and RoE on

the revised opening equity. MSETCL submitted the following table showing the

impact of such disallowed capitalisation of FY 2007-08 and FY 2008-09 on ARR of

FY 2009-10:

Table 9: Impact of claim on disallowed capitalisation for FY 2009-10 submitted

by MSETCL (Rs crore)

Particulars

FY 2009-10

Approved Revised Claim Difference RoE 419.83 432.26 12.43







Total 955.74 998.85 43.11

3.4.2. The Commission’s analysis of the above disallowed capitalisation and the

corresponding impact on ARR has been outlined in Section 3.6 and 3.7 below.

3.5. Impact of Disallowed Capitalisation of Assets for FY 2010-11

3.5.1. MSETCL submitted that the Commission in its Order dated 18 May, 2012 in Case

No. 169 of 2011 approved capitalisation of Rs 2231.95 crore vis-a-vis Rs 2502.28

crore claimed in the Petition for FY 2010-11. However, subsequent to the

Commission’s Order in Case No. 169 of 2011, MSETCL had submitted cost benefit

analysis of some of the schemes to the Commission. Some of the schemes were

disallowed by the Commission on account of the fact that such schemes were not

put to use. In this regard, MSETCL submitted that these schemes have been put to

use in FY 2011-12 and requested the Commission to allow part capitalisation for

such schemes in FY 2010-11. MSETCL submitted the following summary of claim

on disallowed capitalisation for FY 2010-11.


Control Period


Table 10: Claim on disallowed capitalisation for FY 2010-11 by MSETCL (Rs

crore)

FY 2010-11

Case No. 169 of 2011

Case No. 106 of

2012

Balance

to be

claimed

Claimed in

present

Petition* Claimed Approved

Additional

approval in

Review Order

DPR approved 1,602.41 1,297.73 156.79 147.89 44.21

DPR schemes

submitted for

approval 291.79 286.95 3.70 1.14 0.74

MSEB period 116.22 91.79 22.31 2.12 2.12

Non DPR 491.86 335.43 36.56 119.87 9.41#

Total 2,502.28 2,011.9 219.36 271.02 56.48

*Note: Balance to be allowed due to capitalisation of partly capitalised schemes of FY 2010-11 in FY 2011-12.

#Considering 20% of the amount pertaining to DPR schemes claimed in this Petition

3.5.2. MSETCL requested the Commission to approve the claim of Rs. 56.48 crore on

disallowed capitalisation for FY 2010-11.

3.5.3. MSETCL submitted the following table showing the impact of disallowed

capitalisation on ARR of FY 2010-11.

Table 11: Impact of claim on disallowed capitalisation for FY 2010-11

submitted by MSETCL (Rs crore)

Particulars

FY 2010-11

Approved Revised Claim Difference

RoE 464.42 477.64 13.22







Total 1,226.58 1,270.27 43.69

3.5.4. Considering the impact of disallowed capitalisation on ARR as detailed in above

paragraphs, MSETCL requested the Commission to consider net True up

requirement of Rs 145.16 crore and include the amount in ARR of FY 2013-14.


Control Period


Table 12: Summary of Impact due to Disallowed Capitalisation submitted by

MSETCL (Rs crore)

Particulars FY

2007-08 FY

2008-09 FY

2009-10 FY

2010-11 Total

RoE 3.69 11.40 12.43 13.22 40.73

Depreciation including

AAD - - - - -

Interest on Long-term

Loan Capital 11.08 28.76 28.75 28.33 96.91

Interest on Working

Capital and on consumer

security deposits 0.29 0.90 0.54 0.51 2.24

Contribution to

contingency reserves 0.00 1.34 0.84 0.85 3.02

Incentive for higher

availability 0.13 0.78 0.55 0.79 2.25

Total 15.19 43.17 43.11 43.69 145.16

3.6. Disallowed capitalisation approved by the Commission

3.6.1. In the past True up Orders of FY 2007-08, FY 2008-09 and FY 2010-11, the

Commission had disallowed certain capitalisation claimed by MSETCL. During FY

2007-08, MSETCL had initiated certain non-DPR schemes approved by the

erstwhile MSEB. The Commission in its Order dated 28 May, 2009 in Case No. 114

of 2008 opined that since such schemes were started at the time, when the

Commission’s Guidelines for approval of capital investment were in force. Thus,

MSETCL ought to obtain the Commission’s approval for such schemes. The

Commission also directed MSETCL to package similar or related non-DPR

schemes together to form DPR schemes, so that In-principle approval can be sought

from the Commission in accordance with the guidelines specified by the

Commission. In addition, the Commission directed MSETCL to undertake cost

benefit analysis to validate the prudence of each scheme and submit the report of the

same to the Commission.

3.6.2. Accordingly, MSETCL has now got approval of the above referred disallowed

capitalisation after clubbing non-DPR schemes into DPR schemes and has

submitted cost-benefit analysis of the same. MSETCL, further submitted that the

disallowed schemes are capitalized now and MSETCL claimed the impact of such

schemes on ARR from the date such assets were put to use, i.e., from the date of

capitalisation. MSETCL vide its e-mail dated 1 April, 2013 submitted details of

such schemes with capitalization year, objectives and benefits derived from the


Control Period


schemes.

3.6.3. Further, the Commission had assigned M/s Engineering Staff College of India

(ESCI), Hyderabad the task of undertaking techno-economic evaluation of the

capital expenditure and capitalisation for some of the schemes submitted for post

facto In-principle approval by MSETCL. The main objectives of the techno-

economic evaluation study were viz., (a) Assessment for achievement of the

objectives and benefits envisaged for justification of the schemes; and (b) to verify

the capital expenditure and capitalisation claimed.

3.6.4. Under the sample evaluation study, M/s ESCI had organised visits to the sub-station

sites and the concerned field offices for verification of the following:-

a. Establishment of 132 kV sub-station at Kinwat, District Nanded.

b. Establishment of 220 kV sub-station Chikli, District Buldhana.

3.6.5. M/s ESCI after evaluation of the above referred schemes concluded the following:-

a. Both the schemes were found beneficial to transmission network by

improvement in the voltage profile and reduction in overloading and

interruptions.

b. Transmission losses have reduced due to up-gradation of transmission

voltage at both the sub-stations, thus improving the reliability of supply.

3.6.6. The Commission found the report submitted by M/s ESCI to be satisfactory which

was also considered during the post-facto approval of disallowed capitalisation in

the present Order. The details of this approval is as follows:-

a. 18 schemes worth Rs 463.80 crore approved by the Commission vide letter

dated 11 January, 2013;

b. 23 schemes worth Rs 600.50 crore approved by the Commission vide letter

dated 29 September, 2013; and

c. 5 schemes still under scrutiny of the Commission.

3.6.7. Based on the information and cost-benefit analysis provided by MSETCL, the

Commission approved these schemes according to the year in which the scheme is


Control Period


commissioned. The Commission observed that MSETCL had considered part-

capitalisation of few schemes in a year, while the scheme got commissioned in later

years. However, the Commission considered capitalisation of the scheme in a year

in which the scheme is commissioned. The disallowed capitalisation approved by

the Commission in this Order is given in the table below:

Table 13: Disallowed capitalisation approved by the Commission (Rs crore)

Particulars

Submitted by MSETCL Approved in this Order

DPR Non-DPR Total DPR Non-DPR Total

FY 2007-08 192.5 70.80 263.30 83.99 70.80 154.79

FY 2008-09 66.55 6.80 73.35 62.06 6.80 68.86

FY 2009-10 - - - 80.60 - 80.60

FY 2010-11 47.07 9.41 56.48 25.43 9.41 34.84

FY 2011-12 - - - 51.41 - 51.41

FY 2012-13 - - - 2.62 - 2.62

Total 306.12 87.01 393.13 306.12 87.01 393.12

3.6.8. Accordingly, the Commission calculated impact of such disallowed capitalisation

on components of ARR as detailed in the below section.

3.7. Impact of disallowed capitalisation analysed by the Commission

3.7.1. The Commission observed that due to approval of additional capitalisation, there is

increase in GFA of respective years, which further leads to increase to loan balances

and equity balances. It should be noted that the Commission had previously

disallowed capitalisation in Order dated 28 May, 2009 in Case No. 114 of 2008 and

Order dated 10 September, 2010 in Case No. 103 of 2009 of Rs 513.88 crore as

MSETCL did not seek the Commission’s In-principle approval before undertaking

such schemes. It also did not submit adequate documentary evidence in relation to

these schemes. Subsequently, MSETCL sought In-principle approval of the

Commission and submitted DPR and other relevant documents of the schemes, on

the basis of which, the Commission has approved capitalisation for those years in

this Order as per para 3.6.

3.7.2. As precedence, in the Order dated 30 November, 2012 in Case No. 73 of 2010, the

Commission allowed a portion of the capitalisation disallowed earlier for the

respective years. In the said Order, the Commission also stated that, the additional


Control Period


depreciation, return on equity and interest on loans should be allowed on the

additional capitalisation amount. Thereby, the Commission approved the

corresponding impact on depreciation, interest on loans and return on equity due to

approval of disallowed capitalisation in FY 2007-08. The Commission computed

the additional impact of such capitalisation and included it in ARR of FY 2008-09.

In the similar manner, the Commission computed impact of disallowed

capitalisation on the components of ARR in respective years in the present Order.

Further, the additional capitalisation in a year has an impact of addition on the

components, such as, GFA, equity, loan, etc., of the subsequent years. Therefore,

these additions have also been considered while calculating ARR of subsequent

years.

3.7.3. For the above purpose and to give additional impact to the ARR of respective years,

the Commission considered following True up Orders as mentioned in the table

below:

Table 14: Past True up Orders considered in analysis

Particulars Order

FY 2007-08 Case No. 114 of 2008 dated 28 May, 2009

FY 2008-09

Case No. 103 of 2009 dated 10 September, 2010 and Review Order in

Case No. 73 of 2010 dated 30 November, 2010

FY 2009-10 Case No. 102 of 2011 dated 29 December, 2011

FY 2010-11

Case No. 169 of 2011 dated 18 May, 2012 and Review Order in Case No.

106 of 2012 dated 14 December, 2012

3.7.4. The detailed analysis of such increase in ARR is given in the following paragraphs.

Depreciation

3.7.5. MSETCL submitted its claim for increase in depreciation due to additional

capitalisation in the respective years.

3.7.6. The Commission computed increase in depreciation due to additional capitalisation

while considering the opening GFA of FY 2007-08 and determined the depreciation

rate to be 3.51% from the respective True up Order. Further, the Commission also

considered impact of increase in capitalisation on AAD and verified that AAD is

less than 1/10th of principal amount to be repaid in the same year less depreciation.

The revised closing balance of FY 2007-08 is considered as revised opening balance


Control Period


of FY 2008-09. Similarly, revised closing balance of FY 2008-09, FY 2009-10 is

considered as revised opening balance of FY 2009-10 and FY 2010-11,

respectively. Accordingly, the Commission approved depreciation and AAD for the

period under consideration as given below:

Table 15: Depreciation for FY 2007-08 approved by the Commission (Rs crore)

Particulars

FY 2007-08

Approved in

Case No. 73 of

2010

Submitted by

MSETCL

Revised approved

in this Order

Opening GFA for FY 2007-08 8,965.25 8,965.25 8,965.25

Add: Approved Capitalisation

during FY 2007-08 513.88 777.18 668.67

Less: Decapitalisation due to

Migration for FY 2005-06, FY

2006-07 and FY 2007-08 107.22 107.22 107.22

Less: Assets Written Off 1.12 1.12 1.12

Closing GFA for FY 2007-08 9,370.79 9,634.09 9,525.58

Depreciation rate 3.48% 3.48% 3.51%

Loan Repayment 337.68 337.68 337.68

Depreciation 321.88 323.85 324.51

AAD 15.80 13.83 13.17



Particulars

FY 2008-09

Approved in

Case No. 73 of

2010

Submitted by

MSETCL

Revised approved

in this Order


Add: Additional Capitalisation

during FY 2008-09 553.94 627.29 622.8



Depreciation 279.88 298.55 289.21

Loan Repayment 323.13 323.13 323.13

AAD 43.25 24.58 33.92



Control Period



Particulars

FY 2009-10

Approved in

Case No. 102 of

2011

Submitted by

MSETCL

Revised approved

in this Order

Opening GFA for FY 2009-10 9,924.73 10,261.38 10,148.38 Add: Additional Capitalisation

during FY 2009-10 1,112.95 1,112.95 1,193.55

Less: Retirement 91.75 91.79 91.75



Depreciation 303.23 313.01 311.35

Loan Repayment 389.88 389.88 389.88

AAD 86.65 76.87 78.53



Particulars

FY 2010-11

Approved in

Case No. 106 of

2012

Submitted by

MSETCL

Revised approved

in this Order


Add: Additional Capitalisation

during FY 2010-11 2,231.95 2,288.43 2,266.79

Less: Retirement 151.87 151.87 151.87



Depreciation 335.61 345.82 344.61

Loan Repayment 362.79 362.79 362.79

AAD 27.18 16.97 18.18


3.7.7. However, the Commission on analysis found that there would be no change in the

total amount of depreciation including AAD. This was due to the restriction of AAD

to 1/10th

of the principal amount of loan for the year less depreciation. The increase


Control Period


in depreciation led to the setting of AAD amount, due to which the total amount of

depreciation and AAD has remained same in all the years under consideration.

Therefore, the Commission hasn’t considered any impact on ARR due to

depreciation of approved disallowed capitalisation.

Interest on loan

3.7.8. MSETCL submitted its claim for increase in interest expenses on long term loan due

to additional capitalisation, and therefore, increase in loan balances in the respective

year.

3.7.9. The Commission computed increase in loan balance due to additional capitalisation

and considered opening loan balance of FY 2007-08, interest rate, repayment, debt:

equity ratio of 80:20, IDC and SLDC apportionment from the respective True up

Order. Similarly, the Commission computed interest expenses for FY 2008-09. It

should be noted that for FY 2008-09, the computation of interest expenses not only

included impact due to increased capitalisation for FY 2008-09, but also increase in

opening loan balance due to increased capitalisation for FY 2007-08. The

Commission computed interest on long term loan for FY 2009-10 and FY 2010-11

in the same manner.

3.7.10. Accordingly, interest expenses on long term loan approved by the Commission is

given below:


Control Period


Table 19: Interest expenses for FY 2007-08 approved by the Commission (Rs

crore)

Particulars

FY 2007-08

Approved in

Case No. 73 of

2010

Submitted by

MSETCL

Revised

approved in this

Order

Opening Balance of Loan for

FY 2007-08 1,941.18 1,941.18 1,941.18

Add: Additions during the year

in Case No. 114 of 2008 91.05 91.05 91.05

Add: Debt portion of

additional capitalisation

allowed during the year in

Case No. 73 of 2010 215.06 215.06 215.06

Add: Debt portion of

additional capitalisation

allowed in this Order 0.00 210.64 123.83

Less: Repayment during the

year 337.68 337.68 337.68

Closing Balance of Loan for

FY 2007-08 1,909.6 2,120.25 2,033.45

Less: Debt portion of

Decapitalisation due to

migration for FY 05-06, FY

06-07 and FY 07-08 85.78 85.78 85.78

Revised Closing Balance of

Loan for FY 2007-08 1,823.8 2,034.47 1,947.67

Gross Interest Expense for FY

2007-08 202.55 213.63 209.01

Less IDC 10.38 10.38 10.38

Less SLDC Apportionment 0.96 0.96 0.96

Net Interest Expenses for FY

2007-08 191.21 202.29 197.67


crore)

Particulars

FY 2008-09

Approved in

Case No. 73 of

2010

Submitted by

MSETCL

Revised

approved in this

Order


FY 2008-09 1,823.84 2,034.47 1,947.67

Add: Additions during the year 360.68 419.36 415.77

Less: Repayment during the 323.13 323.13 323.13


Control Period


Particulars

FY 2008-09

Approved in

Case No. 73 of

2010

Submitted by

MSETCL

Revised

approved in this

Order

year

Closing Balance of loan for

FY 2008-09 1,861 2,130.70 2,040.30

Gross Interest expenses for FY

2008-09 202.69 231.45 219.34

Less: SLDC apportionment 0.56 0.56 0.56

Less: IDC 45.11 45.11 45.11

Less: Effect of migration of

accounts (1.74) (1.74) (1.74)

Net Interest expenses for FY

2008-09 158.76 187.52 175.41


crore)

Particulars

FY 2009-10

Approved in

Case No. 102 of

2011

Submitted by

MSETCL

Revised approved

in this Order


FY 2009-10 1,861.40 2,130.70 2,040.30

Add: Additions during the year 890.36 890.36 954.84


year 389.88 389.88 389.88

Closing Balance of loan for FY

2009-10 2,357.77 2,627.07 2,601.15


2009-10 225.22 253.97 247.76

Less: SLDC apportionment (0.56) (0.56) (0.56)

Less: IDC (existing loan) (152.98) (152.98) (152.98)

Less: IDC (new loan) 0.00 0.00 0.00


2009-10 71.68 100.43 94.22


Control Period



crore)

Particulars

FY 2010-11

Approved in

Case No. 106 of

2012

Submitted by

MSETCL

Revised

approved in this

Order


FY 2010-11 2,357.77 2,627.07 2,601.15

Add: Additions during the year 1,779.03 1,824.22 1,806.90


year 362.79 362.79 362.79

Closing Balance of loan for

FY 2010-11 3,774.02 4,088.50 4,045.27


2010-11 297.54 325.87 322.51

Less: SLDC apportionment 0.56 0.56 0.56

Less: IDC 0.00 0.00 0.00


2010-11 296.98 325.31 321.95

3.7.11. Based on the above computations, net increase in interest expenses on long term

loan due to impact of disallowed capitalisation approved in this Order is

summarised in the table below:

Table 23: Net increase in interest expenses approved by the Commission (Rs

crore)

Particulars

Interest on long term loan

Approved in

previous Orders

Revised

approved in

this Order Difference

FY 2007-08 191.21 197.67 6.46

FY 2008-09 158.76 175.41 16.65

FY 2009-10 71.68 94.22 22.54

FY 2010-11 296.98 321.95 24.97

Total increase

70.62

Return on equity

3.7.12. MSETCL submitted its claim for increase in equity balance in the respective year

due to additional capitalisation, and therefore, increase in return on equity.


Control Period


3.7.13. The Commission computed increase in equity balance due to additional

capitalisation at 20% of equity and considered opening equity balance of FY 2007-

08 and rate of return on equity at 14% as prescribed in the Tariff Regulations, 2005.

Similarly, the Commission computed RoE for FY 2008-09, FY 2009-10 and FY

2010-11.

3.7.14. Accordingly, return on equity approved by the Commission is given below:

Table 24: Return on equity for FY 2007-08 approved by the Commission (Rs

crore)

Particulars

FY 2007-08

Approved in

Case No. 73 of

2010

Submitted by

MSETCL

Revised approved

in this Order

Regulatory Equity at beginning

of FY 07-08 2,742.22 2,742.22 2,742.22

Net Capitalisation during the

year for ROE calculation 382.65 645.95 537.44

Capitalisation during the year 513.88 777.18 668.67

Less: Consumer Contribution 51.23 51.23 51.23

Less: Grants 80.00 80.00 80.00

Equity portion of net

capitalisation during year 76.53 129.19 107.49

Regulatory equity at end of FY

2007-08 2,818.75 2,871.41 2,849.71

Less: Equity portion of De-

capitalisation due to migration

for FY 05-06, FY 06-07 and

FY 07-08 21.44 21.44 21.44

Total RoE for the Year 387.86 391.54 390.02


Control Period


Table 25: Return on Equity for FY 2008-09 approved by the Commission (Rs

crore)

Particulars

FY 2008-09

Approved in

Case No. 73 of

2010

Submitted by

MSETCL

Revised approved

in this Order

Revised Equity at beginning of

FY 2008-09 2,797.31 2,871.41 2,828.27


year 450.85 524.20 519.71

Capitalisation during FY 2008-

09 553.94 627.29 622.80

Less: Consumer contribution 75.85 75.85 75.85

Less: grants 27.24 27.24 27.24




2008-09 2,887.48 2,976.25 2,932.21

RoE at the beginning of the

year 391.62 402.00 395.96

RoE during the Year 6.31 7.34 7.28



crore)

Particulars

FY 2009-10

Approved in

Case no. 102 of

2011

Submitted by

MSETCL

Revised approved

in this Order

Opening Equity at beginning

of FY 2009-10 2,887.48 2,976.25 2,932.21


year excluding consumer

contribution, grants, etc. 1,112.95 1,112.95 1,193.55


10 1,112.95 1,112.95 1,193.55


Control Period


Particulars

FY 2009-10

Approved in

Case no. 102 of

2011

Submitted by

MSETCL

Revised approved

in this Order

Less: Consumer contribution - - -

Less: grants - - -




2009-10 3,110.07 3,198.84 3,154.80


year 404.25 416.67 410.51

RoE during the year 15.58 15.58 15.58

Total RoE for the year 419.83 432.26 426.09


crore)

Particulars

FY 2010-11

Approved in

Case No. 106 of

2012

Submitted by

MSETCL

Revised approved

in this Order

Opening Equity at beginning

of FY 2010-11 3,110.07 3,198.84 3,154.80


year 2,223.79 2,280.27 2,258.63


11 2,231.95 2,288.43 2,266.79

Less: Consumer contribution 8.16 8.16 8.16

Less: grants - - -

Less: Equity portion of Retired

Assets 30.37 30.37 30.37



Regulatory equity at end of FY 3,524.45 3,654.89 3,576.15


Control Period


Particulars

FY 2010-11

Approved in

Case No. 106 of

2012

Submitted by

MSETCL

Revised approved

in this Order

2010-11


year 435.41 447.84 441.67

RoE during the Year 29.01 29.80 29.49


3.7.15. Based on the above computations, net increase in RoE due to impact of disallowed

capitalisation approved in this Order is summarised in the table below:

Table 28: Net increase in Return on Equity approved by the Commission (Rs

crore)

Particulars

Return on equity

Approved in

previous Orders

Revised

approved in


FY 2007-08 387.86 390.02 2.17

FY 2008-09 397.94 403.23 5.30

FY 2009-10 419.83 426.09 6.26

FY 2010-11 464.42 471.17 6.75

Total increase

20.48

Interest on working capital

3.7.16. MSETCL has submitted impact of additional capitalisation on working capital

requirements, and hence interest on working capital. However, the Commission is

of the view that there will be no impact of additional capitalisation on interest on

working capital. As per Tariff Regulations, 2005, interest on working capital is

computed as below:

“50.6.1 The Transmission Licensee shall be allowed interest on the estimated level

of working capital for the financial year, computed as follows:

(a) One-twelfth of the amount of operation and maintenance expenses for such

financial year; plus

(b) One-twelfth of the sum of the book value of stores, materials and supplies


Control Period


Including fuel on hand at the end of each month of such financial year; plus

(c) One and a half months equivalent of the expected revenue from transmission

charges at the prevailing tariffs; minus {Emphasis added}

(d) Amount, if any, held as security deposits from Transmission System Users.”

3.7.17. It can be seen from the above Regulation that interest on working capital is

approved considering approved O&M expenses, actual revenue received from

transmission Tariff, sum of book value of stores, materials and supplies and security

deposit held by MSETCL in the respective year. None of these heads will be

impacted because of additional capitalisation allowed in this Order. Though

increase in additional capitalisation has an impact on the ARR of the respective

year, the revenue for the purpose of calculating working capital requirements is the

expected revenue collected as transmission charges at prevailing Tariffs as specified

in the Regulations above, and not at revised ARR. Hence, there will be no impact of

additional capitalisation on interest on working capital for any of the year under

consideration.

Contribution to Contingency Reserve

3.7.18. MSETCL has submitted impact of additional capitalisation on contribution to

contingency reserve, as contribution to contingency reserve is linked to opening

GFA of a year. The relevant portion of the Tariff Regulations, 2005 is reproduced

below:

“50.7.1 Where the Transmission Licensee has made an appropriation to the

Contingencies Reserve, a sum not less than 0.25 per cent and not more than 0.5 per

cent of the original cost of fixed assets shall be allowed towards such appropriation

in the calculation of aggregate revenue requirement :

Provided that where the amount of such Contingencies Reserves exceeds five (5 per

cent of the original cost of fixed assets, no such appropriation shall be allowed

which would have the effect of increasing the reserve beyond the said maximum:

Provided further that the amount so appropriated shall be invested in securities

authorized under the Indian Trusts Act, 1882 within a period of six months of the

close of the financial year.” {Emphasis added}

3.7.19. It is clear from the above Regulation that contribution to contingency reserve is


Control Period


allowed to be included in the ARR to compensate for the amount (0.25% to 0.5% of

opening GFA) set aside by the utility for investment in securities within 6 months

from the close of the corresponding financial year. However, as the additional

capitalisation claimed by MSETCL for the respective year is being approved only in

this Order, MSETCL had neither set aside any amount corresponding to the

additional capitalisation for contingency reserve nor invested the amount in

securities within 6 months of closing of respective year into consideration.

3.7.20. At this stage the Commission does not find any necessity of allowing additional

contingency reserve for the previous years, as this does not impact MSETCL in

meeting its operational expenses or profits. These amounts are anyway kept as a

reserve to meet future contingencies.

3.7.21. Therefore, the Commission hasn’t considered any additional impact on contribution

to contingency reserves due to approval of disallowed capitalisation.

Incentive on transmission system availability

3.7.22. MSETCL has submitted impact of additional capitalisation on incentive on

transmission system availability, as it is linked to the ARR and ARR has increased

due to impact of additional capitalisation in the respective year.

3.7.23. The Commission is of the view that due to increase in ARR, incentive on

transmission system availability needs to be recalculated for each of the years and

the increase should be included as revenue gap to be carried forward for recovery in

FY 2013-14. The Commission considered actual availability and ARR allocation

approved by the Commission in the respective True up Order and considered

increase in ARR approved as per above paragraphs. Therefore, the Commission

computed impact on incentive on transmission system availability and approved the

same.


Control Period


Table 29: Net increase in incentive on transmission system availability

approved by the Commission (Rs crore)

Particulars

Incentive on transmission system availability

Approved in

previous Orders

Revised

approved in


FY 2007-08 6.57 6.60 0.03

FY 2008-09 17.02 17.22 0.20

FY 2009-10 26.17 26.54 0.37

FY 2010-11 42.64 43.22 0.58

Total

1.18

Sharing of gains and losses

3.7.24. MSETCL requested the Commission to consider sharing of gains and losses on

controllable items due to increased capitalisation, such as, interest on working

capital.

3.7.25. However, the Commission considered impact of increase in capitalisation only on

depreciation, interest on long-term loans, return on equity and incentive on

transmission system availability, none of which is controllable item. Thus, the

Commission hasn’t considered sharing of gains and losses.

Summary of impact of disallowed capitalisation

3.7.26. The impact of disallowed capitalisation on various heads of ARR items for the

periods as approved by the Commission is provided below.

Table 30: Impact of disallowed capitalisation as approved by the Commission (Rs

crore)

Particulars

FY

2007-08

FY

2008-09

FY

2009-10

FY

2010-11 Total

RoE 2.17 5.30 6.26 6.75 20.48


AAD 0.00 0.00 0.00 0.00 0.00

Interest on Long-term

Loan Capital 6.46 16.65 22.54 24.97 70.62

Interest on Working

Capital and on consumer

security deposits 0.00 0.00 0.00 0.00 0.00


Control Period


Particulars

FY

2007-08

FY

2008-09

FY

2009-10

FY

2010-11 Total

Contribution to

contingency reserves 0.00 0.00 0.00 0.00 0.00

Incentive for higher

availability 0.04 0.20 0.37 0.58 1.18

Total 8.66 22.15 29.17 32.30 92.28

3.8. Carrying Cost on increase in ARR due to impact of disallowed capitalisation

3.8.1. MSETCL submitted that on account of disallowance of capitalisation in past years,

it could not recover the required revenue for those years. MSETCL requested the

Commission to consider appropriate carrying cost on the impact of disallowed

capitalisation of the past years and allow the same to be recovered.

3.8.2. The Commission opined that MSETCL hasn’t been able to recover the revenue for

the past years because MSETCL did not seek the Commission’s In-principle

approval before executing the scheme. Hence, the schemes were initially disallowed

by the Commission and later, approval was granted based on submission of relevant

documents by MSETCL. The delay in getting approval is on account of MSETCL’s

delayed submission. The Commission calculated impact of disallowed capitalisation

on ARR as and when the capitalisation is approved and pass on the impact on ARR

in the Tariff of subsequent years. Thus, the Commission hasn’t allowed any

carrying cost on the impact of disallowed capitalisation of previous years as the

delay in recovery is attributed to MSETCL alone.

3.8.3. Therefore, the net impact of Rs 92.28 crore without any carrying cost would be

added to the cumulative revenue gap and recovered in the subsequent Tariff.


Control Period


4. TRUING UP OF AGGREGATE REVENUE REQUIREMENT FOR

FY 2011-12

4.1. Background

4.1.1. In the present Petition, MSETCL has sought approval for Truing up for FY 2011-12

based on the actual annual expenditure and revenue as per the audited annual

accounts. MSETCL also submitted reasons for variation in the actual expenses for

FY 2011-12, as compared to the approved expenses as per ARR Order dated 18

May, 2012 in Case No. 169 of 2011 and Review Order dated 14 December, 2012 in

Case No. 106 of 2012. MSETCL also submitted that it has considered expenses

pertaining to MSLDC based on the expenses approved by the Commission for FY

2011-12 in Order dated 22 March, 2013 in Case No. 133 of 2012.

4.1.2. The detailed analysis for approval of Truing up for FY 2011-12 by the Commission

is provided in the following sections.

4.2. Change of Accounting Policy

4.2.1. In the Order dated 10 September, 2010 in Case No. 103 of 2009, the Commission

had taken cognizance of the fact that MSETCL has migrated its accounting system

from ESAAR to ICAI Guidelines under the Companies Act, 1956. As a result, the

Commission assessed the impact due to change in accounting policies and

accounted for the same in phased manner by amortising it in five subsequent years,

rather than passing on the whole impact in one single year. Accordingly, the

Commission adjusted impact of such change in FY 2008-09, FY 2009-10 and FY

2010-11 in their respective True up Orders. The balance amount to be amortised is

adjusted in FY 2011-12 and FY 2012-13 in the present Order.

4.3. Truing up of O&M expenses for FY 2011-12

4.3.1. Operation and Maintenance (O&M) expenses comprise of Employee expenses,

Administrative & General (A&G) expenses and Repair & Maintenance (R&M)

expenses. The summary of the expenses incurred by MSETCL is as below:


Control Period


Table 31: O&M expenses submitted by MSETCL (Rs crore)

Particulars

FY 2011-12

MERC Approved (Review Order

in Case No. 106 of 2012) Audited

Operation & Maintenance

Expenses 1,040.66 967.20

Employee expenses 605.79 581.61

A&G expenses 108.92 181.37

R&M expenses 325.95 204.21

4.3.2. MSETCL submitted that actual O&M expenses have decreased vis-a-vis approved

expenses, except A&G expenses. MSETCL also submitted that the Commission

revised the base expenses for FY 2011-12 to account for increase in transformation

capacity. However, MSETCL claimed that the Commission revised base expenses

for FY 2011-12 on the basis of the approved base expenses for FY 2010-11, which

was further based on the approved expenses for FY 2006-07 and not on the basis of

actual expenses. Thus, MSETCL requests the Commission to consider this aspect

while approving O&M expenses for FY 2011-12.

4.3.3. The Commission observed that A&G expenses submitted in the Petition are

different from that of audited annual accounts. In response to the Commission’s

query, MSETCL submitted that the audited annual accounts provide for ‘Other

Expenses’, which include some heads of A&G expenses mentioned in the Petition.

The difference in individual head of O&M expenses in the Petition and audited

annual accounts is due to the requirement of submission of specific heads of O&M

expenses in the requisite formats of the Petition. Due to which, few heads which

were part of ‘Other Expenses’ in audited annual accounts are included in the A&G

expenses of the Petition, explaining the difference. The overall O&M expenses

claimed in the Petition remains the same as that of the audited annual accounts, as

demonstrated by the reconciliation given below:


Control Period


Table 32: Reconciliation of O&M expenses submitted in the Petition and

audited annual accounts as submitted by MSETCL (Rs crore)

Particulars As per Formats As per Audited Accounts

Employee Expenses 570.59 579.40

A&G 165.91 238.09

Other Expenses* 81.00 -

R&M Expenses 203.73 203.73

Total 1,021.22# 1,021.22

*Other expenses in Format F7 excluding prior period expenses

#Excluding effect of migration impact allowed in Order from FY 2008-09 onwards

4.3.4. MSETCL’s submissions on each of these expenditure heads, and the Commission’s

ruling are detailed in the following sections.

4.4. Employee expenses for FY 2011-12

4.4.1. MSETCL submitted that it has incurred Rs 581.61 crore as net employee expenses

in FY 2011-12 as against Rs 605.79 crore approved in the Review Order dated 14

December, 2012 in Case No. 106 of 2012. MSETCL further submitted that

employee expenses have increased in FY 2011-12 vis-a-vis FY 2010-11 for which

MSETCL has provided the explanation in the Petition as described below:

a. Basic salaries have increased by Rs 1.30 crore vis-a-vis FY 2010-11, due to

promotions and annual increments.

b. Regular upward revision in the rate of Dearness Allowance (DA) has

resulted in increase in salaries of staff. For instance, the weighted average

DA rate during FY 2011-12 was higher at 58% vis-a-vis 44% during FY

2010-11.

c. Provision for leave encashment reduced in FY 2011-12, i.e., Rs (19.14)

crore as compared to Rs 29.98 crore during FY 2010-11. MSETCL

submitted that liability for leave encashment is provided for on the basis of

the actuarial valuation. In FY 2011-12, there was a change in the actuarial

computation technique which has also resulted in decrease in the leave

encashment liability. However, MSETCL submitted that though there is a

decrease in leave encashment liability during FY 2011-12, MSETCL


Control Period


expects substantial increase in liability towards leave encashment in FY

2012-13 due to significant retirements throughout FY 2012-13.

Accordingly, MSETCL prayed before the Commission to consider future

liability towards leave encashment on the basis of the audited annual

accounts.

4.4.2. The Commission scrutinized the submissions made by MSETCL and conducted

component-wise analysis of employee expenses for FY 2011-12 vis-a-vis FY 2010-

11 as specified in the following table:

Table 33: Deviation analysis of Employee expenses for FY 2011-12 (Rs crore)

S.

No. Particulars FY 2010-11 FY 2011-12 Difference

1 Basic Salary 263.84 265.14 1.30

2 Dearness Allowance (DA) 99.28 142.21 42.93

3 House Rent Allowance 28.82 30.32 1.50

4 Compensatory Local Allowance 1.07 1.25 0.18

5 Leave Travel Allowance 0.37 0.46 0.09

6 Earned Leave Encashment 11.43 5.38 (6.05)

7 Other Allowances 29.12 29.09 (0.03)

8 Medical Reimbursement 1.27 1.72 0.45

9 Overtime Payment 17.65 22.71 5.06

10 Bonus/Ex-Gratia Payments 6.35 8.85 2.50

11 Interim Relief / Wage Revision - - -

12 Staff welfare expenses 3.41 1.97 (1.44)

13 Board's contribution to ESI fund - - -

14 Other expenses (4.28) - 4.28

15

Payment under Workmen's

Compensation Act 0.32 0.07 (0.25)

Gross Employee Costs excluding

terminal benefits 458.65 509.16 50.51

16 Terminal Benefits - - -

16.1 Provident Fund Contribution 45.95 49.00 3.05

16.2 Provision for PF Fund - - -

16.3 Pension Payments 0.03 0.04 0.01

16.4 Gratuity Payment 34.32 76.48 42.16

16.5 P.F. Insp. & Govt. charges 0.67 0.73 0.06

16.6 Leave Encashment on Retirement 20.52 23.48 2.96

16.7 Provision for PF Interest shortfall 2.56 - (2.56)

16.8 Provision for Leave Encashment 29.98 (19.14) (49.12)

17 Fringe benefit tax paid - - -

18 Others 0.04 - (0.04)

Gross Employee Expenses

excluding adjustments 592.72 631.07 38.35

19 Adjustments of deferred provision of 23.27 - (23.27)


Control Period


S.


leave encashment for FY 06-07

20 Effect of creation of new posts - - -

21

Effect of creation of new posts in

Projects Division - - -

22 Effect of migration impact 19.71 19.71 -

23 Gross employee expenses 635.70 650.78 15.08

24 Less: expenses capitalised 71.48 69.17 (2.31)

25

Total adjusted net employee

expenses 564.22 581.61 17.39

4.4.3. The Commission observed that dearness allowance has increased significantly in

FY 2011-12 vis-a-vis FY 2010-11, the reason of which has been provided by

MSETCL as explained in para 4.4.1.b. The Commission accepts the reason

provided by MSETCL and opines that increase in DA is an uncontrollable factor for

MSETCL. Thus, the Commission approves dearness allowance as per MSETCL’s

submission.

4.4.4. Further, the Commission observed that there has been significant reduction in

provision for leave encashment in FY 2011-12 vis-a-vis FY 2010-11. In response to

the Commission’s query, MSETCL submitted its actuarial computation report,

wherein, the Commission noted that the discount rate used in actuarial computations

for FY 2011-12 is 8.50%, which is higher than the discount rate used for FY 2010-

11, i.e., 8.25%. The Commission accepts that due to increase in discount rate, the

liability towards leave encashment would reduce, leading to reduction in provision

for leave encashment. Further, the Commission observed that provision for leave

encashment was higher in FY 2010-11, vis-a-vis FY 2009-10 due to high number of

retirements. Since, provision for leave encashment is dependent upon the number of

retirements, which is an uncontrollable factor for MSETCL, the Commission

considers the provision for leave encashment as submitted by MSETCL in Truing

up for FY 2011-12.

4.4.5. The Commission observed that gratuity payment has increased by Rs 42.16 crore in

FY 2011-12 vis-a-vis FY 2010-11. However, the Commission notes that payment

towards gratuity is an uncontrollable expense, hence, the Commission approves the

same.

4.4.6. The Commission also considered the expense on account of effect of migration

amounting to Rs 19.71 crore, which was approved in Order dated 10 September,


Control Period


2010 in Case No. 103 of 2009. Further, the Commission considered employee

expenses capitalised as submitted by MSETCL, which is same as that of audited

annual accounts.

4.4.7. The Commission observed that the employee expenses submitted by MSETCL in

FY 2011-12 are lower than the approved expenses by Rs 24.18 crore. However, the

Commission noted that this decrease in employee expenses is on account of

uncontrollable factors, such as change in assumptions of actuarial computation.

Accordingly, the employee expenses approved by the Commission for FY 2011-12

is given in the table below:

Table 34: Employee expenses approved by the Commission for FY 2011-12 (Rs

crore)

Particulars

Approved in

Case No. 106 of

2012

Submitted in

the Petition

Approved in

this Order

Gross employee expenses 664.77 631.07 631.07

Add: Effect of migration 19.71 19.71 19.71

Less: employee expenses capitalized 78.68 69.17 69.17

Net employee expenses 605.79 581.61 581.61

4.5. Administrative and general expenses

4.5.1. MSETCL submitted that the administrative and general (A&G) expenses incurred in

FY 2011-12 were Rs 181.37 crore vis-a-vis Rs 108.91 crore approved in the Review

Order dated 14 December, 2012 in Case No. 106 of 2012. MSETCL submitted that

its asset base has increased significantly over the past few years, leading to an

increase in electricity charges, vehicle running and hiring expenses, security

expenses and other A&G expenses. MSETCL submitted details of asset base over

the past four years is the following table:


Control Period


Table 35: Asset base submitted by MSETCL

Particulars FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12

Transformation capacity in

MVA 66,118 73,791 82,619 82,619

Lines in Ckt. Km 36,716 37,133 38,068 39,764

Number of sub-stations 515 520 536 560

4.5.2. MSETCL submitted that increase in A&G expenses is on account of following

reasons:

a. Security expenses: MSETCL submitted that in ARR Order dated 18 May,

2012 in Case No. 169 of 2011, the Commission approved increased

security expenses for FY 2011-12 based on the projected expenditure of FY

2009-10, rather than actual expenses incurred in FY 2009-10. MSETCL

requested before the Commission to consider this aspect while approving

security expenses. Further, MSETCL submitted that as per the requirement,

12 guards and 2 gunmen for each 400 kV sub-station, 9 guards for each 220

kV sub-station and 6 guards for each 132 kV and below sub-station are

deployed. Further, MSETCL submitted that there is requirement of one

outsourced supervisor for every ten outsourced guards for better and

effective management of the security and vigilance system. Further,

MSETCL submitted that increase in line length and number of sub-stations

in higher in FY 2010-11 and FY 2011-12 as compared to FY 2009-10, as

represented in the table below.

Table 36: Year-wise increment of assets submitted by MSETCL

Particulars FY 2009-10 FY 2010-11 FY 2011-12

Increase in line length in ckt km 417 935 1696

Increase in number of sub-stations 5 16 24

b. Training expenses: MSETCL submitted that it has designed training

policy for its employees considering National Training Policy, which

mandates power sector organizations to ensure training for a minimum

period of one week for each employee annually. Further, the Policy

mandates that each department of the organisation set apart 1.5% of the

salary budget solely for training. MSETCL submitted that it has decided to


Control Period


establish and operate Regional Training Centre (RTC) at each zone for its

Group III & IV employees and a Corporate Training Centre (CTC) for its

Group I & II employees. MSETCL submitted that it has already established

7 regional training centres and a State of the Art training centre is being

established at Lonavala. Further, it has adopted five Industrial Training

Institutes under the sponsorship of the Government of India to create more

skilled manpower in the field of power sector. It has provided training to

total 3939 employees out of total strength of 12,683 during FY 2011-12,

wherein, 98,190 man-days were utilised for training activities. Due to this,

training expenses during FY 2011-12 increased. Thus, MSETCL prayed

before the Commission to approve the training expenses incurred as actual.

c. Electricity charges: MSETCL submitted that due to significant increase in

the asset base and addition in new offices and necessary office equipments

(including IT hardware and other office equipments) during FY 2011-12,

electricity charges have increased during FY 2011-12. Further, certain

software and hardware equipment required round the clock operations,

which has also increased consumption of electricity. Further, MSETCL

submitted that due to multiple Tariff revisions by Distribution Licensees,

electricity charges have increased significantly, as given in the table below:

Table 37: Electricity charges submitted by MSETCL (Rs crore)

Particulars

FY

2006-07

FY

2007-08

FY

2008-09

FY

2009-10

FY

2010-11

Electricity charges

(approved) 4.39 4.62 4.90 5.17 5.65

Electricity charges

(actual) 4.39 5.14 5.51 7.44 24.52

d. Vehicle hiring and running expenses: MSETCL submitted due to 4.48%

increase in number of sub-stations and 4.46% in length of transmission

network, vehicle running and hiring expenses have increased. Further, the

expansion of network has occurred in remote areas of Maharashtra, thereby

increasing the travel cost. Further, MSETCL submitted that increase in fuel

expenses have also led to an increase in the vehicle running and hiring

costs.


Control Period


e. Fees & Subscription Expenses: MSETCL submitted that in FY 2011-12,

it has incurred a one-time expenditure of Rs 2 crore as filing fee towards

the Ministry of Corporate Affairs to increase its Authorised Share Capital

from Rs 5 lakh to Rs 5000 crore.

f. Service Tax towards Lease Rent: MSETCL submitted that it has incurred

payments of Rs 88.28 lacs towards service Tax during FY 2011-12, which

should be considered for reimbursement at the time of Truing up as per the

Order dated 14 December, 2012 in Case No. 106 of 2012.

4.5.3. The Commission conducted component-wise analysis of A&G expenses as given in

the following table:

Table 38: Deviation analysis of A&G expenses for FY 2011-12 (Rs crore)

S.


1 Rent Rates & Taxes 23.31 20.80 (2.51)

2 Insurance 0.87 1.42 0.55

3 Telephone & Postage, etc. 3.88 3.95 0.07

4 Legal charges & Audit fee 1.02 1.34 0.32

5

Professional, Consultancy, Technical

fee 9.05 5.01 (4.04)

6 Conveyance & Travel 15.63 8.48 (7.15)

7 Electricity charges 24.52 36.98 12.46

8 Water charges 4.23 3.80 (0.43)

9 Security arrangements 28.07 38.40 10.33

10 Fees & subscription 0.51 2.96 2.45

11 Books & periodicals 0.05 0.12 0.07

12 Computer Stationery 0.09 0.26 0.17

13 Printing & Stationery 2.87 2.52 (0.35)

14 Advertisements 1.42 1.67 0.25


Control Period


S.


15

Purchase Related Advertisement

Expenses 1.08 2.95 1.87

16 Contribution/Donations 0.00 0.00 0.00

17 License Fee and other related fee 0.18 0.17 (0.01)

18

Vehicle Running Expenses Truck /

Delivery Van 0.64 4.61 3.97

19

Vehicle Hiring Expenses Truck /

Delivery Van 4.08 9.05 4.97

20 Cost of services procured - - -

21

Outsourcing of metering and billing

system - - -

22 Freight On Capital Equipments 0.20 0.73 0.53

23 V-sat, Internet and related charges 0.00 - -

24 Training 0.00 4.95 4.95

25 Bank Charges 0.34 - (0.34)

26 Miscellaneous Expenses 0.00 - -

27 Office Expenses 5.08 7.94 2.86

28 Others 12.01 15.19 3.18

29 Gross A&G Expenses 139.13 170.92 31.79

30 Less: Expenses Capitalised 8.53 9.78 1.25

31 Net A&G Expenses 130.60 161.14 30.54

32 Effect of migration impact allowed 20.23 20.23 -

33 Net Adjusted A&G Expenses 150.83 181.37 30.54

4.5.4. The Commission observed there is significant increase in electricity charges,

security expenses, vehicle hiring and running expenses and training expenses, the

reasons of which have been provided by MSETCL. The Commission analysed the

reasons provided by MSETCL for deciding if any uncontrollable factor has resulted


Control Period


into the deviation in the cost.

4.5.5. Further, the Commission observed that the actual weighted average inflation rate of

WPI and CPI is 8.07% (March 2012 vis-a-vis March 2011), while in Order dated 18

May, 2012 in Case No. 169 of 2011, the Commission considered 7.16%. Therefore,

for the purpose of this Order, the Commission recomputed escalated A&G expenses

by considering 8.07% inflation rate over approved A&G expenses of FY 2010-11

and further, adjusted it for base effect by using escalation rate of 5.78% as done in

previous ARR Order. In the following paragraphs, the Commission has analysed the

uncontrollable factors and approved them over and above the revised escalated

A&G expenses, wherever deemed appropriate.

4.5.6. As regards security expenses, the Commission noted MSETCL’s submission and

acknowledges that it is necessary to deploy sufficient measures for enhancing

security of the transmission network. Also, in Order dated 18 May, 2012 in Case

No. 169 of 2011, the Commission considered increase in security expenses in FY

2010-11 due to additional security measures as uncontrollable. Therefore, the

difference in actual security expenses claimed by MSETCL has been considered by

the Commission. The Commission has allowed the above based on the

substantiation provided by MSETCL in “Security Expenses” section of Para 4.2.1.1

of the Petition. However, the Commission directs MSETCL to undertake only

prudent expenditure on account of security measures in future years.

4.5.7. As regards increase in training expenses, the Commission understands that National

Training Policy of 1996 recommended each organization to set aside 1.5% of salary

budget for training needs, which is revised to 2.5% of salary budget in National

Training Policy 2012 released on 19 January, 2012 by Ministry of Personnel, Public

Grievances and Pensions. However, the Commission observed that MSETCL didn’t

incur any training expense in FY 2009-10 and FY 2010-11, instead incurred Rs 4.95

crore towards training expenses in FY 2011-12. Further, MSETCL submitted that it

received the Commission’s In-principle clearance for setting up Corporate Training

Center at Lonawala with cost of Rs 12.72 crore vide letter

MERC/CAP/DPR/11/09/2803 dated 11 December, 2009. MSETCL clarified that

this expense has been claimed as part of capitalisation. Since, training is

recommended in the National Training Policy, 1996 and 2012; the Commission


Control Period


approves the training expenses incurred by MSETCL in FY 2011-12.

4.5.8. As regards increase in electricity charges, MSETCL claimed that increase in

electricity charges are due to increase in asset base and increase in electricity Tariff.

The Commission has scrutinised the claim of MSETCL and finds that due to

reasons such as increase in consumption at new asset facilities created by MSETCL,

increase in retail Tariffs, etc. the expenditure has become inevitable. Hence, the

Commission has considered this expenditure over and above the approved

expenditure.

4.5.9. The vehicle running and hiring expenses has increased beyond the control of

MSETCL due to the higher asset base and also increase of fuel prices. Therefore,

the Commission has considered this expenditure while approving the A&G

expenses.

4.5.10. As regards increase in fees and subscription expenses, the Commission opines that

statutory fees/levy is an uncontrollable item for MSETCL as per Regulation 17.6 of

Tariff Regulations, 2005. Since, MSETCL incurred Rs 2 crore towards filing fee for

increase in its authorised share capital, the Commission approves such increase as

this is one-time expenditure and is an uncontrollable expenditure.

4.5.11. As regards service tax towards lease rent, the Commission had provided following

ruling in Order dated 14 December, 2012 in Case No. 106 of 2012:

“.....The Commission observes that the service tax on lease rental for FY 2011-12

and FY 2012-13 will be reimbursed at actual at the time of Truing up exercise.”

4.5.12. The Commission verified the payment of service tax from the documentary

evidence provided by MSETCL and approved Rs 0.88 crore towards service tax on

lease rental in True up of FY 2011-12.

4.5.13. Further, the Commission considered capitalised A&G expenses as per audited

annual accounts. Accordingly, the Commission approved the A&G expenses as

provided in the table below:


Control Period


Table 39: A&G expenses approved for FY 2011-12 by the Commission (Rs

crore)

Particulars

Approved

in Case No.

106 of 2012

Submitted

in the

Petition

Approved

in this

Order

Gross administrative and general

Expenses 98.1 170.92 170.92

Add: Effect of migration 20.23 20.23 20.23

Less: Expenses capitalised 9.42 9.78 9.78

Net administrative and general

Expenses 108.92 181.37 181.37

4.6. Repair and Maintenance(R&M) expenses

4.6.1. MSETCL submitted that the actual R&M expenses for FY 2011-12 are lower than

the amount approved by the Commission. Further, MSETCL submitted that this

may be considered as a one year incidence as MSETCL will incur higher costs for

maintaining its vintage assets and expanding transmission network in the coming

years.

4.6.2. The Commission conducted component-wise deviation analysis of R&M expenses

for FY 2011-12 vis-a-vis FY 2010-11 as specified in the following table:

Table 40: Deviation analysis of R&M expenses for FY 2011-12 (Rs crore)

S.


1 Plant & Machinery 201.13 203.55 2.42

2 Buildings 6.71 - (6.71)

3 Civil Works 33.70 - (33.70)

4 Hydraulic Works 0.08 - (0.08)

5 Lines & Cable Networks 43.36 - (43.36)

6 Vehicles 1.02 0.83 (0.19)

7 Furniture & Fixtures 0.14 0.08 (0.06)

8 Office Equipment 1.50 1.41 (0.09)


Control Period


S.


9 Gross R&M Expenses 287.64 204.82 (82.82)

10 Less: Expenses Capitalised 0.64 2.13 1.49

11 Add: Effect of migration impact 1.53 1.53 0.00

12 Net R&M Expenses 288.53 204.21 (84.32)

4.6.3. It is observed that R&M expenses have decreased significantly in FY 2011-12 vis-a-

vis FY 2010-11 due to no R&M expense in civil works and line and cable networks.

Upon seeking reasons for the same, MSETCL replied that these are as per audited

annual accounts.

4.6.4. However, in the ARR Order dated 18 May, 2012 in Case No. 169 of 2011, the

Commission approved R&M expenses applying inflation factor of 6.89% over

Trued up R&M expenses for FY 2010-11 and also considered asset base increase

factor of 5.78%. In addition, the Commission had allowed for provision created on

account of the effect of migration of accounts to ICAI guidelines. As a result, the

approved R&M expenditure was Rs 325.95 crore, which is much higher than the

claimed expenditure of Rs 203.29 crore. The Commission also observed that R&M

expenses have reduced from Rs 305.27 crore in FY 2009-10 to Rs 288.53 crore in

FY 2010-11. Further reduction in R&M expenses from Rs 288.53 crore in FY 2010-

11 to Rs 204.21 in FY 2011-12 is on account of certain factors, which at this point

of time, MSETCL hasn’t provided clarification to the Commission. Therefore, it

can’t be ascertained that such decrease is on account of controllable or

uncontrollable factors and whether such decreased level of expenses is sustainable

in future or not.

4.6.5. Further, it appears that there is no need of giving base effect in R&M expenses as

the claim in this regard made in the Case No. 169 of 2011 doesn’t stand any longer

due to a lower actual expense. Hence, for the purpose of this Order, the Commission

approves R&M expenses by applying escalation due to inflation to the approved

expenses of FY 2010-11. Thus, the Commission escalated approved R&M expenses

of FY 2010-11 using actual WPI inflation rate of 7.69% (March 2012 vis-a-vis

March 2011) and arrived at approved R&M expenses for FY 2011-12. Accordingly,


Control Period


the sharing of gains and losses are approved by the Commission. However, the

Commission understands that R&M expenses approved for FY 2011-12 will have

impact on approved R&M expenses of FY 2012-13. Thus, MSETCL is directed to

provide detailed justifications of this decrease in R&M expenses and reasons of

no R&M expenses in civil works and line and cable networks in FY 2011-12, at

the time of Truing up of FY 2012-13.

4.6.6. Accordingly, R&M expenses are approved by the Commission as provided in the

table below:-

Table 41: Net R&M Expenses approved for FY 2011-12 by the Commission (Rs

crore)

Particulars

Approved in

Case No. 106 of

2012

Submitted in

the Petition

Approved in this

Order

Gross R&M Expenses 325.23 204.82 309.77

Less: Expenses Capitalised 0.81 2.13 2.13

Add: Effect of Migration impact

allowed 1.53 1.53 1.53

Net R&M Expenses 325.95 204.21 309.16

Total O&M expenses

4.6.7. Based on the above discussion, the Commission approves O&M expenses as

detailed below:

Table 42: Net O&M expenses approved for FY 2011-12 by the Commission (Rs crore)

Particulars

Approved

in Case

No. 106 of

2012

MSETCL's

submission

Approved in

this Order

Employee expenses 605.79 581.61 581.61

A&G expenses 108.92 181.37 181.37

R&M expenses 325.95 204.21 309.16

Total O&M expenses 1,040.66 967.20 1,072.15

4.7. Capital Expenditure and Capitalisation

4.7.1. MSETCL submitted actual capitalisation in FY 2011-12 as Rs 2261.32 crore as


Control Period


mentioned in the table below.

Table 43: Capital Expenditure and Capitalisation for FY 2011-12 submitted by

MSETCL (Rs crore)

Particulars

MSETCL

submission in

Case No. 169 of

2011

MERC

Approved (Case

No. 106 of 2012)

Actual as per

Audited A/c for

FY 2011-12

MERC Approved Schemes

(DPR Schemes) 2,549.39 2,538.40 1,855.76

Schemes submitted to MERC

for Approval 457.16 359.26 104.84

Schemes sanctioned in MSEB

period costing Rs 10 crore &

Above (In the process of

Submission to MERC) 21.12 21.12 7.09

Schemes sanctioned costing

<Rs 10 crore (Non-DPR

Schemes) 263.89 263.89 274.34

Intangible Assets - - 19.50

Total 3,291.69 3,182.67 2,261.43

SLDC - - 0.11

Actual Capitalisation net of

SLDC - - 2,261.32

4.7.2. MSETCL submitted that it has duly followed the regulatory procedures for getting

approval of capital expenditure schemes. MSETCL further mentioned that for

capital expenditure schemes costing upto Rs 10 crore, internal approval is taken

from competent authority as per Board delegation, while schemes costing more than

Rs 10 crore have been forwarded to the Commission for approval. MSETCL

requested the Commission to approve the actual capitalisation for FY 2011-12.

4.7.3. The Commission while approving the capitalisation for DPR schemes has

considered schemes submitted by MSETCL in Form 4.4 (Actual FY 12), for which

In-principle approval has been granted by the Commission or request for In-

principle approval has been submitted to the Commission. The DPR schemes

approved were scrutinised for cost benefit analysis and status of these schemes as

on the end of FY 2011-12 was also verified by the Commission.

4.7.4. While scrutinising the submissions of MSETCL, the Commission observed that

capital expenditure of few Non-DPR schemes was higher than the cut-off limit of

Rs 10 crore. Since MSETCL didn’t submit sufficient justifications regarding such


Control Period


schemes, the Commission has disallowed such schemes.

4.7.5. In response to the Commission’s query related to wind evacuation schemes,

MSETCL submitted the details of wind evacuation schemes vide email/letter dated

14 November, 2013, wherein, MSETCL submitted that there is only one wind

scheme “220kV Karad-Sadawaghapur Line” capitalised in FY 2011-12. However,

MSETCL didn’t submit information related to the take-over of assets and receipt of

the payment made to the developer. Therefore, the aforesaid scheme is not

considered by the Commission in FY 2011-12.

4.7.6. Based on the directive “Assets put to use” vide Order dated 18 May, 2012 in Case

No. 169 of 2011, the Commission sought information on bays unutilised by the

distribution companies. MSETCL vide its letter dated 11 June, 2013 submitted

details of unutilised bays in different zones. After scrutiny, the Commission found

that 229 No. of 33 kV bays, 34 No. of 22 kV bays and 6 No. of 11 kV bays has

remained unutilised.

4.7.7. The Commission directed MSETCL for scheme-wise details of spare bays that have

been capitalised but not utilised by MSETCL. Accordingly, as per the reply from

MSETCL, the Commission has disallowed Rs. 46.52 crores of capitalisation in FY

2011-12, corresponding to the spare bays.

4.7.8. Further, the Commission disallowed capitalisation related to returned back schemes,

JV schemes, schemes pertaining to other Licensees, consumer funded schemes and

schemes which are not be commissioned in this Control Period. The capitalisation

for FY 2011-12 approved by the Commission after prudent check are given in the

table below:

Table 44: Capital Expenditure and Capitalisation for FY 2011-12 approved by

the Commission (Rs crore)

Particulars Approved in Case

No. 106 of 2012 MSETCL's

submission

Approved

in this

Order Capitalisation 3,182.67 2,261.32 2,263.61

4.7.9. The above capitalisation of Rs 2263.61 crore approved by the Commission

comprises of Rs 2212.20 crores pertaining to capitalisation for FY 2011-12 and Rs

51.41 crore pertaining to the earlier dis-allowed capitalisation as provided in Table


Control Period


13 above.

4.8. Depreciation including advance against depreciation (AAD)

4.8.1. MSETCL submitted the claim for depreciation and advance against depreciation to

meet the loan repayment obligations. MSETCL further submitted that in Review

Order dated 14 December, 2012 in Case No. 106 of 2012, the Commission

restricted AAD to the difference between 1/10th

of the principal amount of loans to

be repaid and approved depreciation. However, MSETCL prayed before the

Commission to allow depreciation including AAD as mentioned in the table below:

Table 45: Depreciation including advance against depreciation for FY 2011-12

submitted by MSETCL (Rs crore)

Particulars

MSETCL

submission in

Case No. 169 of

2011

Approved in

Case No. 106 of

2012

Actual as per

Audited A/c

(excluding

SLDC)

Depreciation 433.05 407.97 421.79

Loan Payment During the

Year 798.03 798.03 745.15

Advance against Depreciation 364.98 224.04 323.36


4.8.2. For approving depreciation, the Commission considered closing GFA of FY 2010-

11 approved in para 3.7.6 of Section 3 of the present Order. Accordingly, opening

GFA for FY 2011-12 has been considered as Rs. 13,365.10 crore. Further, addition

in assets in FY 2011-12 is considered as per the capitalisation approved in para

4.7.9.

4.8.3. Further, the Commission approved 3.14% as depreciation rate for FY 2011-12 based

on the portfolio of assets submitted by MSETCL as per the audited annual accounts

for FY 2011-12 and depreciation rates prescribed in the Tariff Regulations, 2005.

The Commission also considered retirement of assets during the year to arrive at

closing balance of assets. Based on average of opening and closing GFA and

approved depreciation rate, depreciation for FY 2011-12 is computed.

4.8.4. Further, the Commission notes that the Tariff Regulations, 2005, provides for

advance against depreciation, the excerpts of which are reproduced below for

reference:


Control Period


“48.3 Where the actual amount of loan repayment in any financial year exceeds the

amount of depreciation allowable under Regulation 50.4.1, the Transmission

Licensee shall be allowed an advance against depreciation for the difference

between the actual amount of such repayment and the allowable depreciation for

such financial year:

Provided that the advance against depreciation shall be restricted to 1/10th of the

principal amount of loans that are to be repaid in such financial year minus the

amount of depreciation allowable under Regulation 50.4.1:” {Emphasis Added}

4.8.5. The Commission computed AAD and restricted it to the extent of 1/10th

of principal

amount to be repaid in that year less depreciation computed above. Though the

AAD claimed by MSETCL is higher due to actual repayment obligations, the

Commission has restricted it as per the provisions of the Tariff Regulations, 2005.

Accordingly, the Commission has approved depreciation including AAD for FY

2011-12 as summarised in the following table:-

Table 46: Depreciation including AAD for FY 2011-12 approved by the Commission (Rs

crore)

Particulars Approved in Case No.

106 of 2012

MSETCL's

submission

Approved in this

Order

Opening balance of GFA 13,026.01 13,859.83 13,365.10

Addition in GFA 3,182.67 2,261.43 2,263.61

Retirement of GFA 164.4 42.19 41.75

Closing balance of GFA 16,044.28 16,079.06 15,586.96


Depreciation 407.97 421.79 454.01

Advance against

Depreciation 224.04 323.36 131.60


Advance Against

Depreciation 632.01 745.15 585.62

4.9. Interest on Long term Loans

4.9.1. MSETCL submitted that the capital expenditure incurred in FY 2011-12 was

financed through long-term borrowings from major Financial Institutions (FI), viz.,

(PFC), JICA, (REC), Bank of Baroda, Union Bank of India, Bank of Maharashtra

and Oriental Bank of Commerce. MSETCL submitted actual gross long-term

interest expense for FY 2011-12, excluding SLDC apportionment, as Rs 657.81

crore.

4.9.2. In response to the Commission’s query, MSETCL submitted the loan documents


Control Period


which were perused by the Commission for the analysis. The loan documents

submitted by MSETCL contained the proof of interest rates, tenure of loan,

repayment, receipts of payment of interest and repayment, etc. The Commission

verified the repayment amount and interest rates from the loan documents submitted

by MSETCL. During the scrutiny, the Commission observed that the interest

amount submitted by MSETCL in the Petition and mentioned in the audited annual

accounts is higher than the amount verified from the interest payment receipts.

During subsequent interactions, MSETCL clarified that the actual interest expenses

recognised in the audited annual accounts and in the Petition are higher than the

actual interest payments due to provision created to calculate annualised interest

expenses on pro-rata basis, as actual interest payments may not be true reflection of

actual interest expenses incurred by an entity during a financial year. The

Commission accepts the clarification provided by MSETCL regarding the same.

4.9.3. For determining opening balance of loan for FY 2011-12, the Commission

considered closing balance of loan approved for FY 2010-11 in para 3.7.10 of

Section 3.

4.9.4. It may be noted that till FY 2006-07, the interest expenses were approved based on

the actual gross interest expenses less actual IDC as per the audited annual accounts.

This was subsequently changed in FY 2007-08 to normative gross interest expenses

calculated considering opening balance as per previous year’s closing balance and

addition in loan on account of increase in capitalisation. Further, IDC was deducted

to arrive at approved interest expenses. Subsequently, the Commission, on request

of MSETCL, stopped deducting IDC as addition in loan was considered only on

account of capitalised assets. However, it was observed that some portion of loan

due to work-in-progress remained included in the opening balance of loan, whose

impact was not getting neutralised as IDC was not reduced from interest expenses

calculated. Therefore, the Commission has adjusted opening balance of FY 2011-12

downwards by Rs 273.79 crore, calculated as grossed up capitalised interest

expenses of FY 2006-07 by average interest rate of that year. The Commission has

made this adjustment to reduce loans pertaining to work-in-progress to arrive at

adjusted loan balance, which considered addition in loan due to disallowed

capitalisation as detailed in para 3.7.10 of Section 3.


Control Period


4.9.5. The Commission considered debt: equity ratio of 80:20 for capitalisation of FY

2011-12. The Commission further considered approved opening balance of loan

from each source of loan as per Order dated 18 May 2012 in Case No. 169 of 2011

and considered addition in loan at 80% of the approved capitalisation. As per

MERC Tariff Regulations, 2005, the Commission considered repayment of

normative loan as approved depreciation including AAD for calculating interest

expenses. The interest rate for each source of loan is considered as per MSETCL’s

submission. For this, the Commission verified the loan documents provided by

MSETCL. Accordingly, the Commission calculated interest expenses for FY 2011-

12.

4.9.6. Further, the Commission noticed that in the ARR chapter for Second Control Period

of the Petition, MSETCL has requested the Commission not to deduct the loan

amount by 80% of the retired assets. MSETCL stated that considering 80% debt

funding and repayment equal to depreciation (i.e., @ depreciation rate of 5.28%,

considering rate of plant and machinery which comprises of majority of its assets),

the loan would be repaid in 16th

year itself, implying that no outstanding loan is left

at the end of the life of the asset.

4.9.7. The Commission analysed that at the end of life of the asset, assets gets depreciated

to the extent of 90%. Assuming debt: equity ratio of 80: 20 and considering debt

repayment equal to the depreciation amount, it can be deduced that the entire debt

pertaining to the asset gets repaid during the life of the asset itself, since total

depreciation allowed on an asset is higher than the debt taken for creating the asset.

Thus, at the end of life of the asset when the asset is retired, reducing debt on

account of retired asset is not necessary. Only equity pertaining to the retired assets

is left in the books, which needs to be deducted while computing return on equity.

As precedence, the Commission didn’t consider reduction in loan due to retirement

of assets for Tata Power Company – Transmission in its Order vide dated 30 March,

2013 in Case No. 178 of 2011.

4.9.8. However, to ascertain whether assets retired are fully depreciated at the time of

retirement, the Commission asked MSETCL to provide the year in which each of

the retired assets was capitalised. Upon analysis of the information provided by

MSETCL, the Commission found that the some of the assets retired by MSETCL in


Control Period


FY 2011-12 were not fully depreciated before retirement. The Commission

computed the normative remaining loan corresponding to such assets by taking

difference of the initial loan drawn for such asset and accumulated depreciation till

the time of retirement. The Commission deducted the remaining loan balance of

such assets from the loan portfolio, i.e., Rs 21.89 crore and adjusted the loan

balance downwards on account of retirement of assets.

4.9.9. Further, the Commission considered submissions made by MSETCL for SLDC

apportionment. Accordingly, the Commission approved the net interest expense for

FY 2011-12 as given in the table below:

Table 47: Interest on long term loans for FY 2011-12 approved by the Commission (Rs

crore)

Particulars

Approved in Case

No. 106 of 2012

MSETCL's

submission Approved in this Order

Opening Balance 3,774.01 5,839.64 3,771.50

Additions 2,546.14 2,041.12 1,810.89

Repayments 798.03 745.15 585.62

Reduction in loan

due to retirement of

assets - - 21.89

Closing Balance 5,522.11 7,135.61 4,974.88

Interest rate

approved 8.99% - 10.96%

Gross Interest

Expenses 417.95 657.81 479.26

Less: SLDC

Apportionment - 0.18 -

Less: Expenses

Capitalised 0.00 273.16 -

Less: IDC - - -

Net Interest

Expenses 417.95 384.47 479.26

4.10. Other Interest & Finance Charges

4.10.1. MSETCL submitted that debt funding of the capital investments plan requires

guarantee from the Government of Maharashtra (GoM). Therefore, it will have to

pay guarantee charges to GoM for the guarantee provided by GoM for raising

finance. MSETCL submitted that other finance charges mainly comprise of

guarantee fee payable to GoM, stamp duty and service fee for raising finances,

commitment charges, bank commission, etc. and requested the Commission to


Control Period


consider the same on actual basis.

4.10.2. The Commission in the Order dated 18 May, 2012 in Case No. 169 of 2011 had

approved guarantee charges as per the estimates of MSETCL and finance charges as

0.5% of the loan drawn for the corresponding year as approved by the Commission.

The Commission observed that the actual guarantee charges for FY 2011-12

claimed for True up amounts to Rs 5.68 crore, which is slightly lower than that

approved by the Commission in Order dated 18 May, 2012 in Case No. 169 of

2011. Further, the Commission verified whether finance charges claimed by

MSETCL is within 0.5% of the approved loan drawn, i.e., 0.5% of Rs 1810.89 crore

= Rs 9.05 crore. The Commission found that the actual finance charges claimed for

True up is within the limit approved by the Commission. Therefore, the

Commission approves the actual finance charges claimed by MSETCL.

Table 48: Other Interest and Finance Charges for FY 2011-12 approved by the

Commission

Particulars

Approved in Case

No. 106 of 2012

MSETCL's

submission

Approved in this

Order

Guarantee Charges 5.69 5.68 5.68

Finance Charges 12.73 7.92 7.81

Total 18.42 13.61 13.49

4.11. Interest on Working Capital (IoWC)

4.11.1. MSETCL submitted that interest on working capital has been computed based on

the norms specified in Tariff Regulations, 2005 and audited O&M expenses, book

value of stores, materials and supplies and revenue from transmission charges.

Further, MSETCL submitted that it has considered short term Prime Lending Rate

of State Bank of India prevailing at the time of filing of Tariff Petition, i.e., 14.75%

as normative interest rate for calculating interest on working capital.

4.11.2. Further, MSETCL submitted that as per audited annual accounts, actual interest paid

for working capital loans is Rs 20.99 crore and interest on working capital approved

by the Commission is Rs 66.58 crore.

4.11.3. MSETCL has also considered the difference of IoWC computed based on norms

and actual IoWC as efficiency gain to be shared with the transmission system users.

Thus, MSETCL prayed before the Commission to approve the net entitlement under


Control Period


IoWC, after sharing the gain/ loss, as Rs 51.54 crore for FY 2011-12.

4.11.4. The Commission scrutinised the submissions of MSETCL in regard to the

computation of interest on working capital and estimated normative working capital

requirement as the summation of following items:-

a. One-twelfth of the amount of operation and maintenance expenses for such

financial year,

b. One-twelfth of the sum of the book value of stores, materials and supplies

including fuel on hand at the end of each month of such financial year,

c. One and a half months equivalent of the expected revenue from

transmission charges at the prevailing Tariff, and less

d. Amount, if any, held as security deposits from Transmission System Users

4.11.5. Further, in accordance with the Tariff Regulations, 2005, the interest rate as on the

date of application for determination of Tariff is to be considered for approval of the

interest on working capital. Thus, interest rate of 14.75% has been considered for

estimation of interest on working capital, which was the Prime Lending Rate of

State Bank of India (SBI PLR) as on date of filing of ARR Petition, i.e., 29

November, 2011 in Case No. 169 of 2011.

4.11.6. As regards sum of book value of stores, materials and supplies, the Commission

considered the book value of store, materials and supplies as reflected in the audited

annual accounts for FY 2011-12. However, the Commission adjusted closing

balance of FY 2011-12 by Rs 152.48 crore for inventory discovered during SAP

implementation while considering book value of stores for FY 2011-12.

4.11.7. Revenue from transmission charges were levied on the transmission system users

(TSUs) as per the InSTS Tariff Order dated 10 September, 2010 in Case No. 120 of

2009 during FY 2011-12. According to this Order, MSETCL received Rs 188.69

crore per month as revenue from 1 April, 2011 to 31 March, 2012. The Commission

has considered the same for the purpose of estimating working capital requirement.

4.11.8. As regards O&M expenses, the Commission considered approved O&M expenses

in the previous Order rather than actual O&M expenses claimed by MSETCL.


Control Period


4.11.9. As regards security deposits from consumers, MSETCL clarified that security

deposit mentioned in the audited annual accounts is taken from vendors and not

from consumers. Hence, the Commission didn’t consider any security deposit from

users of transmission system.

4.11.10. However, in its response to the Commission’s query, MSETCL corrected actual

interest paid for working capital loans and requested the Commission to consider Rs

20.04 crore as actual interest on working capital loans. Accordingly, the

Commission has considered efficiency gains based on actual interest paid by

MSETCL on working capital requirements as described in para 4.19.4.

4.11.11. The Commission approves interest on working capital for FY 2011-12 as

given below:

Table 49: Interest on Working Capital for FY 2011-12 as approved by the Commission

(Rs crore)


106 of 2012

MSETCL's

submission

Approved in this

Order

Interest on Working

Capital 66.58 66.10 57.99

4.12. Other Expenses

4.12.1. MSETCL submitted the details of Other Expenses for FY 2011-12 in the table

below:

Table 50: Break-up of other expenses submitted by MSETCL (Rs crore)

Particulars Amount

Compensation for injuries, death and

damages 0.58

Loss on Obsolescence of Fixed Assets 0.16

Deficit on Exchange Rate Variation 79.90

Sundry Expenses 0.20

Material Cost Variance 0.00

Bad & Doubtful Debts written-off 0.16

Adjustments for Prior Period 28.52

Other Expenses Total 109.52

4.12.2. MSETCL requested the Commission to True up other expenses of Rs 109.52 crore

as per the audited annual account for FY 2011-12.


Control Period


4.12.3. The Commission noted that MSETCL has provided reconciliation of Rs 81.00 crore

of Other expenses, while providing reconciliation of O&M expenses as explained in

para 4.3.3. The rest of the ‘Other expenses’ comprise of Prior period expenses.

Upon the Commission’s query on prior period expenses, MSETCL responded that

these are adjustments due to errors or omissions in the financial statements of

previous years and accounted under the head ‘prior period items’. The details as

provided by MSETCL is given below:

Table 51: Prior period expenses submitted by MSETCL (Rs crore)

Particulars (in Rs. crore)

As per Audited

a/c of FY 2011-12

Considered in the

MYT Petition

Prior Period Expenses

Operating expenses 15.49 15.49

Employee costs 2.14 2.14

Administration and other expenses 5.03 5.03

Materials related expenses relating to prev. Year 0.75 0.75

Short Provision of Depreciation for prior period 2.30 2.30

Interest and other finance charges 10.84 10.84

A) Sub Total 36.54 36.54

Prior Period Income

Other income 7.99 7.99

Excess Provision of Depreciation for Prior Periods 0.03 0.03

Income Due to Revaluation in Stock 152.48 0.00*

B) Sub Total 160.50 8.02

Net Adjustments for Prior Period Expenses

considered in the Petition (A-B)

(123.96) 28.52

* MSETCL proposed to treat income due to revaluation of stock in a phased manner in five years as explained

in section of non-tariff income in the Petition

4.12.4. Of these, operating expenses of Rs 15.49 crore are due to short provisions for earlier

years towards water charges, insurance, electricity charges, and various

supplier/contractors payments. Interest and other finance charges of Rs 10.84 crore

are due to short provisions booked toward JICA and other loans.

4.12.5. The Commission opines that such expenses, being O&M in nature, is not considered

in this Order, as prudent O&M expenses of previous years were approved by the


Control Period


Commission in previous True-up Orders after detailed scrutiny. Allowing prior

period O&M expenses in this Order will lead to approval of certain imprudent

expenses disallowed previously. Similarly, prior period expenses on account of

interest and finance charges need not be considered as interest expenses were

approved in previous Orders on the basis of normative loan balance and considering

prior period interest expenses will lead to approval of interest expenses over and

above the normative interest, which is not desirable. Hence, the Commission

disallows prior period expenses claimed by MSETCL in the Petition.

4.12.6. However, the Commission observed that MSETCL has mentioned ‘Other income’

of Rs 7.99 crore as prior period income. The Commission considered this income in

this Order and deducted it from the ‘Other expenses’ to arrive at approved ‘Other

expenses’. It should be noted that the Commission hasn’t considered prior period

income on account of ‘excess provision of depreciation’ as the Commission had

approved depreciation on normative basis, rather than considering audited annual

accounts.

4.12.7. Thus, the ‘Other expenses’ as approved by the Commission is given in the table

below:

Table 52: Other Expenses for FY 2011-12 approved by the Commission (Rs crore)


106 of 2012

MSETCL's

submission

Approved in this

Order

Compensation for

injuries, death and

damages

Not

Appli

cable

0.58 0.58

Loss on

Obsolescence of

Fixed Assets 0.16 0.16

Deficit on

Exchange Rate

Variation 79.90 79.90

Sundry Expenses 0.20 0.20

Material Cost

Variance 0.00 0.00

Bad & Doubtful

Debts written-off 0.16 0.16

Adjustments for

Prior Period 28.52 (7.99)

Other Expenses

Total 87.87 109.52 73.00


Control Period


4.13. Return on Equity

4.13.1. MSETCL submitted that it has calculated RoE in accordance with the Regulation

50.1 of the MERC Tariff Regulations, 2005 as detailed in the table below:

Table 53: Return on Equity for FY 2011-12 submitted by MSETCL (Rs crore)

Particulars


106 of 2012

MSETCL’s

submission

Regulatory Equity at the Beginning of

the Year 3,524.45 3,772.41

Equity portion of the capitalisation

during the year 636.53 452.29

Reduction in Equity Capital on account

of retirement / replacement of assets 32.88 8.44

Regulatory Equity at the End of the Year 4,128.11 4,216.25

Return on Regulatory Equity at the

Beginning of the Year 493.42 528.14

Return on Equity portion of the

capitalisation during the year 42.26 31.07

Total Return on Regulatory Equity 535.68 559.21

4.13.2. The Commission adopted the principle specified in the Tariff Regulations, 2005 for

calculating return on equity. The Commission observed that MSETCL has

erroneously considered Rs 3772.41 crore as opening balance of equity for FY 2011-

12. However, the Commission considered closing balance of regulatory equity for

FY 2010-11 as approved in para 3.7.14 of Section 3, i.e., Rs 3,576.15 crore as

opening balance of equity for FY 2011-12. Further, addition in equity due to

approved capitalisation in FY 2011-12 is considered at the rate of 20% of

capitalisation.

4.13.3. Further, the Commission considered retirement of assets as submitted by MSETCL

and reduced equity to the extent of 20% of the value of retired assets. Also, the

Commission computed RoE using 14% as rate of return on equity, prescribed as per

Tariff Regulations, 2005. Approved RoE for FY 2011-12 is provided in the table

below:


Control Period


Table 54: Return on equity approved for FY 2011-12 approved by the

Commission (Rs crore)

Particulars

Approved in Case

No. 106 of 2012

Submitted

by

MSETCL

Approved

in this

Order

Regulatory Equity at the Beginning of

the Year 3,524.45 3,772.41 3,576.15

Capitalisation during the Year 3,182.67 2,261.43 2,263.61


during the year 636.53 452.29 452.72

Consumer contribution and Grants used

during the year for Capitalisation - - -

Reduction in Equity Capital on account

of Retirement/ Replacement of assets 32.88 8.44 8.35

Regulatory Equity at the End of the

Year 4,128.11 4,216.25 4,020.52

Return on Equity Computations


Beginning of the Year 493.42 528.14 500.66

Return on Equity portion of the

capitalisation during the year 42.26 31.07 31.11

Total Return on Regulatory Equity 535.68 559.21 531.77

4.14. Income Tax

4.14.1. MSETCL requested the Commission to consider actual income tax of Rs 179.67

crore for FY 2011-12, instead of considering the approved income tax expense of

Rs 133.98 crore.

4.14.2. The Commission verified Rs 176.50 crore as income tax expense in the audited

annual accounts. Upon the Commission’s query regarding the difference in income

tax expense claimed by MSETCL and that of audited annual accounts, MSETCL

replied that in the audited annual accounts, provision for income tax is provided,

while final assessment for income tax is carried out after the finalisation of the

audited annual accounts. Due to this, there are chances of variation in the provision

made in the audited annual accounts vis-a-vis the actual income tax liability and

payment. MSETCL provided the Income Tax Return Acknowledgement (ITR-V)

for AY 2012-13 to verify the same. The Commission scrutinised the ITR-V

submitted by MSETCL and found it satisfactory. Thus, the Commission approves

income tax expense as submitted by MSETCL in the Petition.


Control Period


Table 55: Income Tax for FY 2011-12 as approved by the Commission (Rs

crore)


106 of 2012

Submitted by

MSETCL

Approved in this

Order

Income Tax 133.98 179.67 179.67

4.15. Contribution towards contingency reserves

4.15.1. MSETCL requested the Commission to approve contribution towards contingency

reserves on the basis of the audited annual accounts, i.e., Rs 33.39 crore.

4.15.2. Further, MSETCL submitted that in accordance with directions of the Commission

vide Order dated 10 September, 2010 in Case No. 103 of 2009, it has appropriated,

an amount of Rs 32 crore towards contingency reserves and Rs 1.37 crore towards

short provision of contingency reserves.

4.15.3. MSETCL further submitted that to comply with the directives issued by the

Commission, MSETCL, vide Board Resolution No. 60/22 dated 7 February, 2011,

had to prematurely encash FDs of Rs 98.76 crore (IDBI bank), Rs 10.32 crore

(Central Bank of India), Rs 6.62 crore (Corporation Bank) and Rs 9.37 crore

(Oriental Bank of Commerce) carrying interest of 7.08%, 8.61%, 8.60% and 7.30%

p.a. respectively to invest the same amount in securities authorised under the Indian

Trusts Act, 1882.

4.15.4. The Commission has verified that the accumulated contingency reserves of

MSETCL do not exceed 5% of the original cost of fixed assets as stipulated in the

Tariff Regulations, 2005. Further, MSETCL submitted the documentary evidence

showing that the above amount has been invested in the approved class of securities.

4.15.5. For calculation of contingency reserves, the Commission adjusted the approved

opening GFA of FY 2011-12 by deducting approved amount of disallowed

capitalisation. The Commission has made this adjustment as the Tariff Regulations,

2005 states that

“50.7.1 Where the Transmission Licensee has made an appropriation to the

Contingencies Reserve, a sum not less than 0.25 per cent and not more than 0.5 per

cent of the original cost of fixed assets shall be allowed towards such appropriation

in the calculation of aggregate revenue requirement........”


Control Period


4.15.6. The Commission opined that since disallowed capitalisation for previous years has

been approved in the present Order, MSETCL wouldn’t have set aside its

contribution towards contingency reserves for such capitalisation in FY 2011-12.

Hence, the Commission computed contribution to contingency reserves at 0.25% of

approved opening GFA for FY 2011-12 less approved disallowed capitalisation of

past years. Accordingly, contribution to contingency reserve approved by the

Commission is shown in the table below:-

Table 56: Contribution towards Contingency Reserves for FY 2011-12



No. 106 of 2012

Submitted by

MSETCL

Approved in this

Order

Contribution towards

Contingency Reserves 32.57 33.39 32.57

4.16. Revenue from Transmission Charges

4.16.1. MSETCL submitted that for computing the revenue gap for FY 2011-12, MSETCL

has considered actual revenue recovered which is based on average monthly Tariff

of Rs 188.69 crore as approved by the Commission in the InSTS Tariff Order dated

10 September, 2010 in Case No. 120 of 2009. This amounts to Rs 2264.28 crore

from transmission Tariff for FY 2011-12. MSETCL submitted the following table

on revenue from transmission Tariff:

Table 57: Revenue from Transmission Charges for FY 2011-12 submitted by

MSETCL (Rs crore)

Particulars

Submission in

Case No. 169 of

2011

Approved in

Case No. 106 of

2012

As per Audited

A/c

Revenue from Transmission

Tariff 2264.28 2264.28 2264.25

Income from Wheeling

Central Sector power to Goa 20.52 20.52 20.58

Income from Wheeling

Central Sector power to Dadra

Nagar - - 5.72

4.16.2. MSETCL submitted that the revenue earned for wheeling central power to Goa is

according to the principle enunciated by Western Regional Power Committee

(WRPC), which has been endorsed by the Hon’ble ATE's Judgement dated

December 17, 2007 in Appeal No. 150 of 2007.


Control Period


4.16.3. The Commission verified MSETCL’s submission from the audited annual accounts

and considered the same as revenue recovered from transmission charges and

income from Goa and Dadra Nagar wheeling charges.

Table 58: Revenue from Transmission Charges for FY 2011-12 as approved by



No. 106 of 2012

Submitted by

MSETCL

Approved in this

Order

Revenue from

Transmission Charges 2,264.28 2,264.25 2,264.25

Income from Goa &

Dadra Nagar wheeling

charges 20.52 26.30 26.30

4.17. Non-Tariff Income

4.17.1. MSETCL submitted the following table indicating non-tariff income earned in FY

2011-12:

Table 59: Non-Tariff income for FY 2011-12 submitted by MSETCL (Rs crore)

S. No Particulars Audited

1 Interest on Contingency Reserve

investments 13.00

2 Interest on Other Investments 4.35

3 Other/ Miscellaneous receipts 148.70

4 Other Receipts 1.40

5 Interest on Staff loans and

Advances 0.29

6 Sale of Scrap 24.64

7 Excess provision written back 7.67

8 Rent 0.81

9 Revenue from Open Access

Charges 107.99

Total 308.84*

* Revised to Rs 304.56 crore by MSETCL in its further correspondence with the Commission

4.17.2. MSETCL submitted that the main reason for high non-tariff income is the interest

earned on other income as compared to FY 2010-11, which is a year specific results

of market returns earned by MSETCL and is not sustainable for future years.

4.17.3. MSETCL further submitted that the item under the head “Other/ Miscellaneous

Receipts” for FY 2011-12 includes an amount of Rs 48 crore towards non-


Control Period


refundable deposits from previous years which were transferred to P&L in FY

2011-12 and is not repetitive in nature.

4.17.4. Further, MSETCL submitted that the non-tariff income claimed in the Petition is

different from the income shown in audited annual accounts due to non-

consideration of income under following heads:

a. Valuation of stores and spares: MSETCL submitted that certain stores and

spares parts amounting to Rs 152.48 crore which had been charged to

R&M expenses were not actually consumed in earlier years. This was

found when MSETCL installed SAP as ERP platform and conducted

physical verification of inventories. Accordingly, MSTECL credited this

amount as prior period income in audited annual accounts. However,

MSETCL requested the Commission not to consider this impact in single

year and requested to spread it over five years, as such unutilized stores

will not be consumed within a year and will be consumed in future years

for carrying out R&M expenses. Therefore, MSETCL has spread this

revenue over five years starting from FY 2013-14 onwards as Rs 30.50

crore per year.

b. Income from sale of assets: MSETCL submitted that it has considered Rs

20.51 crore from sale of scrap in its P&L Account under the head "other

operating income" and Rs 4.13 crore as profit on sale of scrap is also

considered separately. MSETCL submitted that scrap is essentially 10%

residual value of assets and the balance 90% have already been charged as

depreciation. MSETCL further submitted that since recovery of value of

asset through depreciation is allowed only to the extent of 90% of original

cost, residual value of asset as scrap should not be considered as non-tariff

income as it is not recovered from consumers in any form. Only profit/loss

on account of sale of such asset should be considered.

4.17.5. The Commission analysed various components of non-tariff income. Upon analysis,

the Commission found MSETCL’s claim that main reason for high non-tariff

income is the ‘interest earned on other income’ is flawed. The interest income for

MSETCL is not significant and interest income doesn’t vary significantly across

years, hence, it is not a year-specific result.


Control Period


4.17.6. Further, the Commission asked MSETCL to reconcile the difference between non-

tariff income claimed in the Petition and given in the audited annual accounts.

While replying, MSETCL found that there has been an error, wherein, non-tariff

income was computed by deducting income pertaining to MSLDC, i.e., SLDC fees,

rescheduling charges and other receipts as approved by the Commission in Order

dated 22 March, 2013 in Case No. 133 of 2012, instead of considering the actual

income earned as per audited annual accounts. Accordingly, MSETCL submitted

revised claim of Rs 304.56 crore as non-tariff income by deducting actual income

pertaining to MSLDC as per audited annual accounts.

4.17.7. However, on analysis, the Commission found that MSETCL has submitted Rs

107.99 crore as revenue from open access charges, wherein, revenue towards short-

term open access charges of Rs 4.10 crore has been added and SLDC rescheduling

charges have been deducted. The revenue towards short-term open access charges

were later clarified as SLDC fees in MSETCL’s reconciliation of non-tariff income.

Therefore, the Commission didn’t consider such open access charges of Rs 4.10

crore and rescheduling charges of Rs 1.68 crore as non-tariff income as these are

attributed to SLDC. As provided by MSETCL in the reconciliation statement,

‘Other receipts’ of Rs 0.05 crore is pertaining to SLDC and is included in the non-

tariff income of MSETCL in audited annual accounts. The Commission considered

this and reduced non-tariff income of MSETCL by Rs 0.05 crore.

4.17.8. As regards valuation of stores, the Commission opines that there is no merit in

spreading an amount of Rs 152.48 crore over five years. This amount was treated as

R&M expense in previous years, which was passed on to the consumers by way of

higher Tariff. Treating this expense over a period of five years from FY 2013-14

onwards will not only result in delay in passing of this income to the consumers, but

will also fail to reduce the revenue gap of MSETCL on which carrying cost is levied

while determining transmission Tariff for future years. The Commission opines that

expense incurred in a year should be passed on to the consumers as far as possible

in True up of the same year. Similarly, benefit from income earned in a year should

also be passed on to the consumers as far as possible in the same year in which True

up is conducted. As a result, the Commission considers this entire amount of Rs

152.48 crore as Prior period income and considered while determining ARR of FY

2011-12.


Control Period


4.17.9. Upon the Commission’s query on break-up of miscellaneous income as given in

Schedule-25 of audited annual accounts, MSETCL responded with the following

table, explaining that the increase in miscellaneous income in FY 2011-12 vis-a-vis

FY 2010-11 is on account of increase in the short-term open access charges, rebate

on prompt payment from REC and PFC towards timely payment of loan and interest

and other miscellaneous receipts.

Table 60: Details of miscellaneous receipts for FY 2011-12 submitted by

MSETCL (Rs crore)

Particulars FY 2010-11 FY 2011-12

Registration fee 0.31 1.01

Sundry credit balances written back 1.66 1.77

Discount received on prompt payment to Vendor 0.77 1.28

Income from Supervisory Charges (For ORC Projects) 0.03 0.004

Fees from library members 0.16 -

Recovery for Transport/Vehicle Exp. Other than emp. 0.0009 0.002

Rebate for prompt Payment from REC - 0.04

Rebate for prompt Payment from PFC - 4.37

Other Miscellaneous Receipts 49.70 140.23

Liquidated Damages Recovered from Contractor/Supp 0.51 -

Short Term Open Access Charges - 105.45

Recoveries from transport facilities 1.66 0.01

Misc. Recoveries from Employees - -

Total Misc. Income 54.80 254.15

4.17.10. The Commission accepted MSETCL’s submission regarding the same.

4.17.11. As regards income from JV partners, MSETCL replied to the Commission’s query

that MSETCL entered into JV with Sterlite Technologies Ltd., for which actual

potential of OPGW business is being ascertained presently. As actual potential has

not been established yet, MSETCL hasn’t estimated other income due to this yet.

MSETCL submitted that it shall include its impact in ARR, once actual potential is

ascertained. The Commission will take this into consideration in subsequent Orders

of MSETCL.

4.17.12. As regards income from sale of scrap, the Commission opines that in case of sale of


Control Period


scrap of capitalised asset, only profit from sale of scrap should be considered as

non-tariff income, instead of considering total revenue proceeds. This is because

when a fully depreciated asset is sold as scrap, the proceeds from sale comprise of

following two components:

a. Salvage value of the asset; and

b. Any gain/loss on sale of asset, i.e., sale price – salvage value.

4.17.13. Out of these, the salvage value is in lieu of the capital invested by the transmission

Licensee at the time of purchase of asset. Assuming debt towards purchase of asset

is repaid till the time assets is fully depreciated, any salvage value remained is on

account of equity invested by the transmission licensee. Considering salvage value

as non-tariff income and deducting non-tariff income from ARR will tantamount to

giving equity invested by the transmission licensee to the consumers, which is not

desirable. Thus, the Commission opines that salvage value in case of capitalised

asset need not be considered as non-tariff income.

4.17.14. However, the Commission opines that any revenue realised from sale of scrap,

wherein, the scrap belongs to items which are of revenue expenditure in nature,

such as, replacement of conductor or cable, should be considered as non-tariff

income. This is because such revenue expenditure would have been recovered from

the consumers in the form on ARR and any proceeds from sale of such items should

be passed onto the consumers.

4.17.15. Therefore, the Commission directed MSETCL to furnish details of items sold as

scrap and classify them in capitalised asset and revenue expenditure. The

Commission scrutinised the details submitted by MSETCL and classified them in

the following manner:

Table 61: Classification of scrap

Particulars Rs crore

Scrap- capitalised asset 9.39

Scrap- revenue expenditure 10.49

Other adjustments 0.63

4.17.16. Based on the above, only the value of scrap of Rs 10.49 crore corresponding to


Control Period


scrap from revenue expenditure and the profit on sale of scrap of Rs 4.13 crore is

approved by the Commission.

4.17.17. Accordingly, non-tariff income approved by the Commission is given below:

Table 62: Non-Tariff income for FY 2011-12 approved by the Commission (Rs crore)

S. No Particulars Approved

1

Interest on Contingency Reserve

and other investments 17.64

3 Other/ Miscellaneous receipts 150.05

4 Other Receipts -

5

Interest on Staff loans and

Advances -

6 Sale of Scrap 14.62

7 Excess provision written back 7.67

8 Rent 0.80

9

Revenue from Open Access

Charges 105.45

Total 296.23

4.18. Incentive on Transmission Availability

4.18.1. MSETCL requested the Commission to approve incentive on transmission system

availability as submitted in the table below:

Table 63: Incentive on transmission availability for FY 2011-12 submitted by MSETCL

(Rs crore)

Particulars

Actual

Availability

(%)

Target

Availability

(%)

ARR of

FY

2011-12

%

Allocation

of ARR

ARR

Allocation Incentive

HVAC 99.72 98.00 3,058.30 85.04 2,600.78 45.65

HVDC 96.55 95.00 14.96 457.52 7.46

4.18.2. The Commission verified the actual availability claimed by MSETCL from the

MSLDC certification submitted by MSETCL and found it satisfactory. The

Commission allowed incentive on transmission system availability as follows:


Control Period


Table 64: Incentive on transmission availability for FY 2011-12 approved by the

Commission (Rs crore)

Particulars

Actual

Availability

(%)

Target

Availability

(%)

ARR of

FY 2011-

12

%

Allocation

of ARR

ARR

Allocation Incentive

HVAC 99.72 98.00 2,598.03 85.04 2,209.36 38.78

HVDC 96.55 95.00 14.96 388.67 6.33

4.19. Sharing of gains/losses

4.19.1. MSETCL categorised all the expenditure, except interest on working capital, as

uncontrollable and hence, did not compute the gains and losses for other

controllable heads of expenditure. As regards interest on working capital, MSETCL

has treated this expense as efficiency gains in line with the Commission’s treatment

of interest on working capital in the Order dated 18 May, 2012 in Case No. 169 of

2011. The relevant provisions under the Tariff Regulations, 2005 stipulating sharing

of gains/losses due to controllable factors are reproduced below:

“17.6.2 Some illustrative variations or expected variations in the performance of the

applicant which may be attributed by the Commission to controllable factors include,

but are not limited to, the following:

a) Variations in capital expenditure on account of time and/ or cost

overruns/efficiencies in the implementation of a capital expenditure project not

attributable to an approved change in scope of such project, change in statutory

levies or force majeure events;

b) Variations in technical and commercial losses, including bad debts;

c) Variations in the number or mix of consumers or quantities of electricity

supplied to consumers as specified in the first and second proviso to clause (b)

of Regulation 17.6.1;

d) Variations in working capital requirements;

e) Failure to meet the standards specified in the Standards of Performance

Regulations, except where exempted in accordance with those Regulations;

f) Variations in labour productivity;

g) Variations in any variable other than those stipulated by the Commission under

Regulation 15.6 above, except where reviewed by the Commission under the

second proviso to this Regulation 17.6. … 19.1 The approved aggregate gain to

the Generating Company or Licensee on account of controllable factors shall

be dealt with in the following manner:

..........

19.1 The approved aggregate gain to the Generating Company or Licensee on account

of controllable factors shall be dealt with in the following manner:


Control Period


a) One-third of the amount of such gain shall be passed on as a rebate in tariffs

over such period as may be specified in the Order of the Commission under

Regulation 17.10;

b) In case of a Licensee, one-third of the amount of such gain shall be retained in

a special reserve for the purpose of absorbing the impact of any future losses on

account of controllable factors under clause (b) of Regulation 19.2; and

c) The balance amount of gain may be utilized at the discretion of the Generating

Company or Licensee.

19.2 The approved aggregate loss to the Generating Company or Licensee on account

of controllable factors shall be dealt with in the following manner:

a) One-third of the amount of such loss may be passed on as an additional charge

in tariffs over such period as may be specified in the Order of the Commission

under Regulation 17.10; and

b) The balance amount of loss shall be absorbed by the Generating Company or

Licensee.”

4.19.2. The Commission specifies that the deviation on all other items have not been

considered as controllable. Therefore, the components where deviation is of

controllable in nature, i.e., O&M expenses and interest on working capital, the

sharing of gains/ losses has been computed.

O&M expenses

4.19.3. As regards O&M expenses, the actual audited expenditure of Rs 967.20 crore is

lower than Rs 1040.66 crore approved in the Review Order dated 14 December,

2012 in Case No. 106 of 2012. MSETCL has made an efficiency gain in R&M

expenses as actual R&M expenses are lower than the Trued up amount. Deviation in

employee expenses and A&G expenses were treated uncontrollable, hence not

considered any efficiency gain/loss. Accordingly, efficiency gains/loss is computed

and shared with MSETCL in accordance with the Tariff Regulations, 2005 as

reproduced above.

Interest on Working Capital

4.19.4. The actual interest on working capital incurred by MSETCL during FY 2011-12 is

Rs 20.04 crore and the normative interest on working capital approved by the

Commission after considering other elements of expenses and revenue as approved

after Truing up, is Rs 57.99 crore. The Commission has considered the entire

normative interest on working capital above the actual expense of Rs 20. 04 crore as

an efficiency gain and has considered sharing of 1/3rd of the same with the


Control Period


consumers, 1/3rd is considered for special reserve created to offset future losses due

to controllable factors (if any), and 1/3rd is allowed to be retained by MSETCL.

4.20. Summary of efficiency gains/ (losses) for FY 2011-12

4.20.1. The summary of sharing of efficiency gains/(losses) is shown in the table below:

Table 65: Sharing of Efficiency Gains/(Losses) due to variation in O&M Expenses &

Interest on Working Capital for FY 2011-12 (Rs crore)

Particulars

Previous

Order

Actual

(A)

Entitlement as

per

Regulations/

Order (B)

Gain/

(Loss)

(B - A)

Efficiency

Gains/(Losses)

shared with

TSUs

Net

entitlement

of

MSETCL

O&M

expenses 1,040.66 967.20 1,072.15 104.95 34.98 1,037.16

Employee

expenses 605.79 581.61 581.61 0.00 0.00 581.61

A&G

expenses 108.92 181.37 181.37 0.00 0.00 181.37

R&M

expenses 325.95 204.21 309.16 104.95 34.98 274.18

Interest on

working

capital 66.58 20.04 57.99 37.95 12.65 45.34

Total 1,107.24 987.24 1,130.13 142.90 47.63 1,082.50

4.20.2. The total efficiency gains shared with MSETCL is Rs 47.63 crore, out of which

MSETCL is directed to retain Rs 15.88 crore in a special reserve for the purpose of

absorbing the impact of any future losses on account of controllable factors, as per

Regulation 19.1 of Tariff Regulations, 2005.

4.21. Revenue (Gap)/ surplus till FY 2011-12

4.21.1. According to the above analysis, the Commission determined revenue gap to be

considered in ARR for FY 2013-14 as per the table below:

Table 66: Cumulative revenue (Gap)/ surplus till FY 2011-12 (Rs crore)

Particulars

Submitted

by

MSETCL Approved in this Order

Aggregate Revenue Requirement from

Transmission Tariff 2,708.12 2,502.86

Revenue from Existing Tariff 2,264.25 2,264.25

Revenue (Gap)/ Surplus for the Current (443.87) (238.61)


Control Period


Particulars

Submitted

by


year

Revenue (Gap)/ Surplus till previous year (752.9) (752.90)

Add: impact of disallowed capitalisation (92.28)

Cumulative Revenue Gap (1,196.77) (1,083.80)

(add) Incentive on Transmission

Availability of HVAC System 45.65 38.78

(add) Incentive on Transmission

Availability of HVDC System 7.46 6.33

Cumulative Revenue Gap till the year (1,249.88) (1,128.91)

4.22. Summary of Truing up including Sharing of Gains & Losses for FY 2011-12

4.22.1. The summary of the net ARR and efficiency gains as approved by the Commission

for FY 2011-12 is given in the following table:

Table 67: Summary of True up for FY 2011-12 approved by the Commission

(Rs crore)

Particulars

Submitted

by

MSETCL

Approved

in this

Order

Efficiency

gains/losses

shared with

TSUs

Net

Entitlement

after

efficiency

gain/loss Operation & Maintenance

Expenses 967.20 1,072.15 34.98 1,037.16

a. Employee expenses 581.61 581.61 0 581.61

b. A&G expenses 181.37 181.37 0 181.37

c. Employee expenses 204.21 309.16 34.98 274.18

Depreciation 421.79 454.01 454.01

Advance against

depreciation 323.36 131.60 131.60

Interest on Long-term Loan

Capital 384.47 479.26 479.26

Interest on Working Capital

and on consumer security

deposits 51.06 57.99 12.65 45.34

Other Interest and finance

charges 13.61 13.49 13.49

Other Expenses 109.52 73.00 73.00

Income Tax 179.67 179.67 179.67


Control Period


Particulars

Submitted

by

MSETCL

Approved

in this

Order

Efficiency

gains/losses

shared with

TSUs

Net

Entitlement

after

efficiency

gain/loss Contribution to contingency

reserves 33.39 32.57 32.57

Total Revenue

Expenditure 2,484.06 2,493.74 2,446.11

Return on Equity Capital 559.21 531.77 531.77

Aggregate Revenue

Requirement 3,043.26 3,025.51

2,977.87

Less: Non Tariff Income 308.84 296.23

296.23

Less: Income from Goa &


charges 26.30 26.30

26.30

Less: Amortisation of

Income due to Revaluation

of Stocks 0

152.48

152.48

Aggregate Revenue

Requirement from

Transmission Tariff 2,708.12 2,550.50

2,502.86

Revenue from Transmission

Tariff 2,264.25 2,264.25

2,264.25

Revenue (Gap)/surplus for

current year (443.87) (286.25)

(238.61)

Revenue (Gap)/surplus till

previous year (752.90) (752.90)

(752.90)

Impact of past period

disallowed capitalisation (92.28)

(92.28)

Cumulative Revenue Gap (1,196.77) (1,131.43) (1,083.80)

(add) Incentive on

Transmission Availability of

HVAC System 45.65 38.78 38.78

(add) Incentive on

Transmission Availability of

HVDC System 7.46 6.33

6.33

Cumulative Revenue

(Gap)/surplus till the year (1,249.88) (1,176.54)

(1,128.91)

4.23. Performance Parameters

Transmission Loss


Control Period


4.23.1. MSETCL submitted that the Commission in the APR Order dated 10 September,

2010 in Case No. 103 of 2009 had approved transmission loss of 4.85% as

normative loss for InSTS and also observed that the same will be reviewed once the

ABT metering at all the interface points gets completed.

4.23.2. MSETCL submitted the status of metering till 8 March, 2013 in the table given

below:

Table 68: Status of ABT meters installed for interface locations

ABT Meter Installation Status

Utility Type of

Interface

Metering

Location Installed Balance

MSETCL G<->T 239 239 0

T<->D 1,193 1,193 0

EHV Cons 222 221 1

RInfra G<->T 4 4 0

T<->D 116 116 0

TPCL G<->T 35 35 0

T<->D 185 185 0

BEST G<->T 0 0 0

T<->D 92 92 0

Total 2,086 2,085 1

4.23.3. MSETCL submitted that the actual transmission loss for FY-2011-12 is 4.17%.

Also, MSETCL submitted that losses in the transmission lines depend on factors,

such as, shift of load centres, energy injection and withdrawal from the network and

the extent of inherent technical loss pertaining to the transmission equipment in use.

Further, MSETCL submitted the trend in transmission loss over the past four years

as per the following table:

Table 69: Transmission loss for InSTS for FY2011-12 submitted by MSETCL

S.

No Year

Energy Input

(MU)

Energy Output

(MU)

Transmission

Loss

1 FY 2008-09 95,477.956 90,815.816 4.88%

2 FY 2009-10 1,01,872.316 97,195.234 4.59%

3 FY 2010-11 1,07,810.082 1,03,162.694 4.31%

4 FY 2011-12 1,17,534.520 1,12,634.492 4.17%

4.23.4. MSETCL submitted that it has maintained the transmission losses to near normative

level in spite of increase in the volume of electricity handled by its transmission

network.


Control Period


4.23.5. The Commission asked MSETCL that the actual Transmission Loss submitted in

the Petition is 4.17%. Whereas, the MSLDC accounted loss for FY 2011-12 for

InSTS as 4.25%. MSETCL replied that due to revision in the energy accounting by

MSEDCL circle offices and other distribution utilities, the energy accounting for

FY 2011-12 was revised by SLDC, Kalwa. MSETCL submitted the revised data on

transmission loss for FY 2011-12 as follows:

Table 70: Revised Transmission Loss of InSTS for FY 2011-12 Submitted by MSETCL

S.

No Year

Energy Input

(MU)

Energy Output

(MU)

Transmission

Loss

1 FY 2011-12 1,17,555.044 1,12,561.678 4.25%

4.23.6. The Commission accepted the Transmission loss submitted by MSETCL. Also,

the Commission directs MSETCL to undertake a detailed study to determine

feasible options for reduction of losses in its transmission network including

technical solutions and best practices/benchmarking of such solutions in other

States. The study report shall be submitted to the Commission within a period

of one year from date of issue of the present Order.


Control Period


5. ANNUAL PERFORMANCE REVIEW FOR FY 2012-13

5.1. Background

5.1.1. In the present Petition, MSETCL has sought Annual Performance Review for FY

2012-13 based on the actual expenditure incurred in first six months of FY 2012-13

starting from 1 April, 2012 to 30 September, 2012 and projected expenditure for the

period starting from 1 October, 2012 to 31 March, 2013. MSETCL also submitted

reasons for variation in the submitted expenses for FY 2012-13, as compared to the

expenses approved in ARR Order dated 18 May, 2012 in Case No. 169 of 2011 and

Review Order dated 14 December, 2012 in Case No. 106 of 2012.

5.2. O&M Expenses for FY 2012-13

5.2.1. MSETCL submitted that O&M expenses are claimed as per the Business Plan Order

dated 11 January, 2013 in Case No. 137 of 2011, which is same as that of O&M

expenses approved in Review Order dated 14 December, 2012 in Case No. 106 of

2012.

5.2.2. MSETCL further submitted that though leave encashment liability decreased during

FY 2011-12, a significant number of retirements is expected during FY 2012-13 as

estimated on the basis of age of the existing employees of MSETCL. This would

lead to a substantial increase in the provision for leave encashment during FY 2012-

13. Accordingly, MSETCL requested the Commission to consider the liability

towards leave encashment in FY 2012-13 as per the audited annual accounts at the

time of final Truing up.

5.2.3. Additionally, MSETCL submitted that dearness allowance (DA) will increase at the

prevailing DA rate of 71%, which is at the highest level in last two-three years.

5.2.4. Further, MSETCL submitted that on account of addition of assets during FY 2012-

13 and inflation, expenses such as security expenses, electricity charges, training

expenses, vehicle running and hiring charges will increase during FY 2012-13.

Also, MSETCL requested the Commission to consider the service tax on lease

rentals on actual basis at the time of final Truing up.

5.2.5. MSETCL submitted that the actual R&M expenses for FY 2011-12 is less than that


Control Period


approved by the Commission in Order dated 14 December, 2012 in Case No. 106 of

2012. However, due to the maintenance of vintage assets and expanding

transmission network, MSETCL requested the Commission to consider the actual

R&M expense at the time of final Truing up. Accordingly, O&M expenses

submitted by MSETCL is mentioned in the table below:

Table 71: O&M Expenses for FY 2012-13 submitted by MSETCL (Rs crore)

Particulars Submitted in Petition

Total O&M Expenses 1,115.42

5.2.6. The Commission scrutinized the submissions made by MSETCL and conducted

component-wise analysis of O&M expenses. The Commission observed that the

actual expenditure incurred by MSETCL during first six months of FY 2012-13 is

much lower than the projected O&M expenses for next six months of FY 2012-13,

as summarised in the table below:

Table 72: Component-wise O&M expenses submitted by MSETCL (Rs crore)

Particulars Apr-Sep 2012 Oct 2012-Mar 2013 Difference


A&G expenses 90.50 24.79 (65.71)

R&M expenses 116.73 231.58 114.85

Total O&M

expenses 521.64 593.83 72.20

5.2.7. Upon the Commission’s query on the same, MSETCL replied that it has computed

projected O&M expenses for period Oct 2012-March 2013 by deducting actual

expenses incurred during April-Sep 2012 from O&M expenses approved in the

Review Order dated 14 December, 2012 in Case No. 106 of 2012. MSETCL replied

that it has followed this methodology so that the total projected expenses for FY

2012-13 are same as that of the expenses earlier approved by the Commission.

5.2.8. However, the Commission has projected O&M expenses for full year FY 2012-13

on the basis of the Trued up expenses of FY 2011-12. The component-wise

estimation as conducted by the Commission is explained in below paragraphs.

5.2.9. Employee expenses: For estimating employee expenses for FY 2012-13, the

Commission escalated approved employee expenses for FY 2011-12 by 11.44%,


Control Period


equivalent to the rate of increase in CPI of March 2013 vis-a-vis March 2012.

Further, the Commission approved an additional amount of Rs 19.71 crore as an

adjustment for the effect of migration from ESAAR to ICAI accounting system, as

allowed in Order dated 10 September, 2010 in Case No. 103 of 2009. Capitalisation

of employee expenses are considered as per the approved figures given in Order

dated 14 December, 2012 in Case No. 106 of 2012, which will be Trued up based

on the actual capitalised expenses at the time of Truing up.

5.2.10. A&G expenses: To estimate the gross A&G expenses for FY 2012-13, the

Commission escalated approved gross A&G expenses for FY 2011-12 by 7.97%,

which is the weighted average rate of increase of WPI and CPI of March 2013 vis-

a-vis March 2012. The Commission didn’t consider uncontrollable expenses of Rs

0.88 crore for service tax towards lease rent and one-time expenditure of Rs 2 crore

towards fees and subscription, while escalating A&G expenses of FY 2011-12. The

Commission will consider actual service tax towards lease rent for FY 2012-13 at

the time of actual Truing up. As regard estimate of A&G expenses to be capitalised

in FY 2012-13, the Commission accepted the estimates provided by MSETCL,

which is in line with the capitalised A&G expenses approved by the Commission in

Order dated 14 December, 2012 in Case No. 106 of 2012. Further, the Commission

added an amount of Rs 20.23 crore on account of adjustment for the effect of

migration from ESAAR to ICAI accounting system.

5.2.11. R&M expenses: As explained in para 4.6.4 and 4.6.5 of Section 4, the Commission

has asked MSETCL to provide detailed reasons for decrease in R&M expenses.

Since, view needs to be formed on the basis of further submissions from MSETCL,

the Commission considered approved R&M expenses as per Order dated 18 May,

2012 in Case No. 169 of 2011 in APR. The same will be trued up on the basis of

further submissions of MSETCL and audited annual accounts. As regard estimate of

R&M expenses to be capitalised in FY 2012-13, the Commission accepted the

estimates provided by MSETCL, which is in line with the capitalised R&M

expenses approved by the Commission in Order dated 14 December, 2012 in Case

No. 106 of 2012. Further, the Commission added an amount of Rs 1.53 crore on

account of adjustment for the effect of migration from ESAAR to ICAI accounting

system.


Control Period


5.2.12. Accordingly, the Commission approves O&M expenses as given in the table below:

Table 73: O&M Expenses for FY 2012-13 approved by the Commission (Rs crore)


No. 106 of 2012

Submitted by

MSETCL

Approved in this

Order


A&G expenses 115.24 115.24 191.54

R&M expenses 348.30 348.30 348.30

Total O&M expenses 1,115.42 1,115.42 1,179.92

5.2.13. The Commission will consider actual O&M expenses based on the audited annual

accounts at the time of Truing up.

5.3. Capitalisation

5.3.1. MSETCL submitted that it has claimed capitalisation as approved by the

Commission in its Order dated 18 May, 2012 in Case No. 169 of 2011 as given in

the table below:

Table 74: Capitalisation for FY 2012-13 submitted by MSETCL (Rs crore)

Particulars Submitted in the Petition

DPR 3,732.25

Non-DPR 142.37

Capitalisation 3,874.62

5.3.2. However, MSETCL requested the Commission to consider actual capitalisation for

FY 2012-13 at the time of final Truing up. Also, MSETCL highlighted that

payments towards invoices raised by MSETCL has been less than the invoice

amount, due to which MSETCL is facing a cash flow problem and difficulty in

executing capital expenditure related works.

5.3.3. The Commission scrutinised the details of schemes submitted by MSETCL for

capitalisation in FY 2012-13. As mentioned in para 4.7.4 of Section 4, the

Commission hasn’t considered non-DPR schemes costing more than Rs 10 crore.

Also, the Commission observed that MSETCL didn’t submit scheme ‘110 kV

Pandharpur’, ‘220 kV Kalwa-Trombay’ and ‘132 kV Chopda -Shirpur’, but were

claimed in the present Petition.

5.3.4. It is observed that as per the guideline specified by the Commission, Licensees have

to seek In-principle approval for undertaking capital expenditure schemes above Rs

10 crore. Therefore, in the absence of details, the Commission has considered only


Control Period


schemes which were approved in principal. Accordingly, the capitalisation

approved by the Commission for FY 2012-13 is given in the table below:

Table 75: Capitalisation for FY 2012-13 approved by the Commission (Rs crore)

Particulars


106 of 2012

Submitted by

MSETCL

Approved in this

Order

Capitalisation 3,874.62 3,874.62 3,783.63

5.4. Interest and Finance Charges

5.4.1. MSETCL proposed to fund its capital expenditure through debt: equity ratio of

80:20, which was approved by the Commission in Order dated 18 May, 2012 in

Case No. 169 of 2011. MSETCL considered its existing loan arrangements from

LIC, JICA, IFC, Bank of Maharashtra and Oriental Bank of Commerce, to fund its

capital expenditure plans. In addition, MSETCL submitted that loans from REC and

PFC have been considered in the ratio of 80:20 to meet its further debt requirement.

5.4.2. MSETCL submitted that existing rate of interest of 12.25% has been considered for

calculation of interest expenses on PFC and REC loans. MSETCL has also provided

details of loan drawl, repayment schedule, and interest rates of other agencies in

formats submitted with the Petition.

5.4.3. MSETCL submitted that loan balance is calculated on the basis of the actual loan

carried forward from FY 2011-12 and the estimated loan drawl during FY 2012-13.

Further, MSETCL submitted that interest rate of 11.5% on the estimated debt

portion (80%) of closing work-in-progress has been considered to compute

capitalised interest.

5.4.4. MSETCL submitted that “Other interest and finance charges” have been considered

same as that approved by the Commission in its Order dated 14 December, 2012 in

Case No. 106 of 2012. The estimated interest expenses submitted by MSETCL for

FY 2012-13 are given in the table below:


Control Period


Table 76: Estimated Interest Expenses for FY 2012-13 submitted by MSETCL (Rs

crore)

Particulars FY

2012-13

Gross Interest Expenses 965.49

Interest Capitalised 459.53

Total Interest Expenses 504.52

Other interest and finance charges 18.50

5.4.5. The Commission considered closing balance of loan for FY 2011-12 as opening

balance of loan for FY 2012-13. Further, 80% of approved capitalisation is

considered as addition in loan. Regarding reduction in loan due to retirement of

assets, the Commission observed that in FY 2011-12, MSETCL retired certain

assets within few years of their capitalisation. Thus, loan pertaining to such assets

wouldn’t have been completely paid off at the time of retirement. Therefore, for the

purpose of APR, the Commission considered 80% reduction in loan on account of

retirement of assets. The Commission considered MSETCL’s submission regarding

the amount of assets estimated to be retired in FY 2012-13. At the time of Truing

up, the Commission shall determine the amount of loan to be deducted pertaining to

such assets, by following the methodology described in para 4.9.8.

5.4.6. As regards interest expenses for FY 2012-13, the Commission computed interest

expenses as per the methodology followed in True up of FY 2011-12 described in

para 4.9.5. However, the same shall be trued up on the basis of the actual interest

expenses borne by MSETCL in FY 2012-13 at the time of final Truing up.

5.4.7. As regards interest capitalised, following the approach adopted in previous Order

dated 18 May, 2012 in Case No. 169 of 2011, the Commission hasn’t considered

any capitalisation of interest in this Order.

5.4.8. The Commission considered other interest and finance charges as submitted by

MSETCL, which is same as that approved by the Commission in Order dated 14

December, 2012 in Case No. 106 of 2012. However, the same will be Trued up

based on the audited annual accounts at the time of final Truing up.

5.4.9. Based on the above analysis, the Commission approved interest and finance charges

for FY 2012-13 as per the table below:


Control Period


Table 77: Interest expenses for FY 2012-13 approved by the Commission (Rs crore)


No. 106 of 2012

Submitted by

MSETCL

Approved in this Order

Opening Balance of

loan 5,522.11 7,135.61 4,974.88

Loan Additions 3,099.70 3,916.00 3,026.90

Loan Repayment 657.15 978.82 813.79

Reduction due to

retirement of assets - - 179.31

Closing balance of

loan 7,964.66 10,072.79 7,008.68

Interest Expense 464.41 965.49 668.09

Other interest and

finance charges 18.50 18.50 18.50

5.5. Depreciation

5.5.1. MSETCL submitted that depreciation for FY 2012-13 has been computed using

depreciation rates provided in the Tariff Regulations, 2005. Further, MSETCL

submitted that actual opening GFA and approved addition in asset during FY 2012-

13 have been considered to compute depreciation. MSETCL also considered AAD

along with depreciation for FY 2012-13 as given in the table below:

Table 78: Estimated depreciation for FY 2012-13 submitted by MSETCL (Rs crore)

Particulars Approved in

Case No. 106 of

2012

Submitted in

the Petition

Depreciation including AAD 657.15 978.82

Depreciation 501.50 560.49

Advance Against Depreciation 155.65 418.33

5.5.2. The Commission observed that both depreciation and advance against depreciation

submitted by MSETCL is higher than that approved by the Commission in Order

dated 14 December, 2012 in Case No. 106 of 2012. The Commission found that the

weighted average rate of depreciation considered by the Commission in Order dated

14 December, 2012 in Case No. 106 of 2012 was 2.81%, while in the Petition,

MSETCL has considered higher depreciation rate of 3.13% based on the actual

asset mix as on 1 April, 2012.

5.5.3. The Commission considered closing balance of GFA for FY 2011-12, which

includes adjustment on account of approval of disallowed capitalisation as opening


Control Period


balance for FY 2012-13. The Commission considered addition in assets as per

approved capitalisation for FY 2012-13 and retirement of assets as submitted by

MSETCL, i.e., 1.39% of opening GFA. The Commission also observed that actual

retirement of assets in FY 2011-12 is 0.3% of opening GFA as on 1 April, 2012,

however, the Commission considered MSETCL’s submissions for the purpose of

APR. The same will be trued up based on audited annual accounts during the final

Truing up.

5.5.4. The Commission computed depreciation rate of 3.13% considering category-wise

addition in assets in the ratio of their opening balances of respective categories to

compute depreciation on the assets for FY 2012-13.

5.5.5. Further, the Commission also observed that MSETCL hasn’t restricted AAD to be

extent of difference between 1/10th

of principal amount to be repaid in that year and

depreciation. The Commission computed AAD based on the MSETCL’s

submissions and restricted it to the extent of difference between 1/10th

of principal

amount to be repaid in that year and depreciation computed in the above para.

5.5.6. Based on the explanation provided above, depreciation including AAD as approved

by the Commission is given in the table below:


Particulars

Approved in Case

No. 106 of 2012

Submitted by


Opening Gross Fixed

Assets (GFA) 16,044.28 16,079.06 15,586.96

Addition of Gross

Fixed Assets 3,874.62 3,874.62 3,783.63

Asset Retirement 224.14 224.14 224.14

Closing Gross Fixed

Assets 19,694.76 19,695.92 19,146.45


Depreciation 501.5 560.49 539.58

AAD approved 155.65 418.33 274.21

Depreciation

including AAD 657.15 978.82 813.79

5.6. Interest on working capital and consumer security deposit

5.6.1. MSETCL submitted that interest on working capital has been computed based on


Control Period


the normative parameters prescribed in the Tariff Regulations, 2005. MSETCL

considered short-term SBI PLR of 14.75% for computing interest on working

capital, which was considered by the Commission in its Order dated 14 December,

2012 in Case No. 106 of 2012.

5.6.2. Further, MSETCL submitted that it does not envisage any security deposit to be

taken from the users of its transmission system and thus, interest on security deposit

is not considered by MSETCL for computing working capital requirement.

5.6.3. Accordingly, MSETCL submitted interest on working capital as Rs 80.43 crore for

FY 2012-13.

5.6.4. The Commission scrutinised the submissions of MSETCL in regard to the

computation of interest on working capital and estimated normative working capital

requirement as the summation of following items:-

a. One-twelfth of the amount of operation and maintenance expenses for such

financial year,

b. One-twelfth of the sum of the book value of stores, materials and supplies

including fuel on hand at the end of each month of such financial year,

c. One and a half months equivalent of the expected revenue from

transmission charges at the prevailing Tariff, and less

d. Amount, if any, held as security deposits from Transmission System Users

5.6.5. Further, in accordance with the Tariff Regulations, 2005, the interest rate as on the

date of application for determination of Tariff is to be considered for approval of the

interest on working capital. Thus, interest rate of 14.75% has been considered for

estimation of interest on working capital, which was the Prime Lending Rate of

State Bank of India (SBI PLR) as on date of filing the ARR Petition in Case No.

169 of 2011, i.e., 29 November, 2011.

5.6.6. As regards sum of book value of stores, materials and supplies, the Commission has

considered the amount approved for FY 2011-12 as explained in para 4.11.6. The

same will be trued up based on audited annual accounts for FY 2012-13 at the time

of final Truing up.


Control Period


5.6.7. Transmission charges were levied on the transmission system users (TSUs) as per

the InSTS Tariff Order dated 10 September, 2010 in Case No. 120 of 2009 and

InSTS Tariff Order dated 21 May, 2012 in Case No. 51 of 2012 during FY 2012-13.

According to these Orders, MSETCL received Rs 188.69 crore per month as

revenue from 1 April, 2012 to 31 May, 2012 and Rs 296.07 crore per month as

revenue for the remaining financial year. The Commission has considered the same

for the purpose of estimating working capital requirement.

5.6.8. As regards security deposit is concerned, MSETCL clarified that it doesn’t envisage

taking security deposit from consumers. Hence, the Commission didn’t consider any

security deposit from users of transmission system.

5.6.9. Further, the Commission will consider efficiency gains on account of interest on

working capital based on actual interest paid by MSETCL on working capital

requirements at the time of final Truing up.

5.6.10. Accordingly, the Commission approves interest on working capital for FY 2012-13

as calculated below:

Table 80: Interest on working capital for FY 2012-13 approved by the Commission (Rs

crore)

Particulars

Approved in

Case No. 106

of 2012

Submitted

by

MSETCL

Approved in

this Order

Computation of Working Capital

One-twelfth of the amount of Operations

and Maintenance

Expenses 92.95 92.95 98.33

One-twelfth of the sum of the book value

of stores,

materials and supplies 19.64 27.12 20.77

One and a half months of the expected

revenue from transmission charges at the

prevailing Tariff 369.45 424.6 417.26

Total Working Capital 482.04 544.67 536.35

Computation of working capital interest

Rate of Interest (% p.a.) 14.75% 14.75% 14.75%

Interest on Working Capital 71.10 80.34 79.11

5.7. Return on Equity

5.7.1. MSETCL submitted that return on equity has been claimed as per the Tariff


Control Period


Regulations, 2005, while considering 20% equity contribution for the capitalisation

estimated for FY 2012-13. Further, MSETCL also submitted that reduction in RoE

due to estimated asset retirement during the year is also considered as per the

approach stipulated in the Order dated 14 December, 2012 in Case No. 106 of 2012

and Business Plan Order dated 11 January, 2013 in Case No. 137 of 2011.

5.7.2. The Commission adopted the principles specified in the Tariff Regulations, 2005 for

computing the RoE. The Commission considered closing balance of equity of FY

2011-12 as approved in para 4.13.3 of Section 4 to be the opening equity for FY

2012-13. Further, addition in equity is considered at 20% of approved capitalisation

in FY 2012-13. Reduction in equity due to estimated retirement of assets in FY

2012-13 is considered as 20% of estimated retired assets. The same will be trued up

based on audited annual accounts at the final Truing up.

5.7.3. The Commission computed RoE using 14% as rate of return on equity, prescribed in

the Tariff Regulations, 2005. Approved RoE for FY 2012-13 is provided in the table

below:

Table 81: Return on equity for FY 2012-13 approved by the Commission (Rs crore)

Particulars

Approved

in Case

No. 106

of 2012

Submitted

by


Regulatory Equity at the beginning

of the year 4,128.11 4,216.25 4,020.52

Capitalisation during the year 3,874.62 3,874.62 3,783.63


during the year 774.92 774.92 756.73

Consumer contribution and Grants

used during the year for

Capitalisation - - -

Reduction in Equity Capital on

account of Retirement/ Replacement

of assets 44.83 44.83 44.83

Regulatory Equity at the End of the

Year 4,858.20 4,946.35 4,732.42

Return on Equity computations -


beginning of the year 577.94 590.28 562.87

Return on equity portion of the

capitalisation during the year 51.11 51.11 49.83


Control Period


Particulars

Approved

in Case

No. 106

of 2012

Submitted

by


Total Return on Regulatory

Equity 629.04 641.38 612.71

5.8. Other Expenses

5.8.1. MSETCL submitted that other expenses for FY 2012-13 have been estimated by

considering a nominal increase of 2% on actual expenses incurred in FY 2011-12.

MSETCL also submitted that prior period adjustments and loss on exchange rate

variation have not been considered for estimation during FY 2012-13.

5.8.2. The Commission accepted MSETCL’s submissions in this regard and didn’t

consider prior period adjustments and loss on exchange rate variation in other

expenses for FY 2012-13 as these expenses can’t be projected. The Commission

considered an increase of 2% on rest of the heads of ‘Other Expenses’ to project

‘other expenses’ of FY 2012-13. The ‘Other Expenses’ approved by the

Commission are given below:

Table 82: Other expenses for FY 2012-13 approved by the Commission (Rs crore)

Particulars

Approved in Case

No. 106 of 2012

Submitted by

MSETCL

Approved in

this Order

Other Expenses 1.23 1.12 1.12

5.9. Contribution to Contingency Reserves

5.9.1. MSETCL submitted that contribution to contingency reserves has been computed at

the rate of 0.25% of the opening GFA, following method adopted by the

Commission in Business Plan Order dated 11 January, 2013 in Case No. 137 of

2011.

5.9.2. As discussed in para 4.15.5, the Commission computed contribution to contingency

reserves at the rate of 0.25% of the approved opening GFA of FY 2012-13 after

adjusting for approved disallowed capitalisation. Further, the Commission ensured

that the accumulated contingency reserves have not increased beyond limit of 5% of

the opening GFA. Also, as detailed in para 4.15.4, the Commission verified that

MSETCL has invested contingency reserve in authorised securities. The


Control Period


contribution to contingency reserves as proposed by MSETCL and as approved by

the Commission is given in the table below:

Table 83: Contingency Reserves for FY 2012-13 approved by the Commission (Rs

crore)

Particulars

Approved in Case

No. 106 of 2012

Submitted by

MSETCL

Approved in this

Order

Contingency Reserves 40.11 40.20 37.99

5.10. Income Tax

5.10.1. MSETCL submitted that it has claimed income tax as part of ARR for FY 2012-13

in accordance with the Tariff Regulations, 2005. MSETCL submitted that it has

estimated the income tax liability considering WDV depreciation as per Income Tax

Act and provided details in formats submitted with the Petition.

5.10.2. The Commission observed that MSETCL has computed profit after tax (PAT) based

on the expenses and revenue for FY 2012-13. However, for estimation of income

tax, the Commission followed the approach adopted in Order dated 18 May, 2012 in

Case No. 169 of 2011, where in, RoE earned by the transmission licensee is grossed

with the applicable MAT rate, i.e., 20.01% and then income tax is computed on this

grossed-up amount. The Commission will consider the actual income tax paid by

MSETCL in FY 2012-13 based on the audited annual accounts at the time of final

Truing up. The income tax expense as projected by MSETCL and as approved by

the Commission is given in the table below.

Table 84: Income Tax for FY 2012-13 approved by the Commission (Rs crore)

Particulars

Approved in Case

No. 106 of 2012

Submitted by

MSETCL

Approved in this

Order

Income tax 157.34 275.40 153.25

5.11. Non-Tariff Income

5.11.1. MSETCL submitted that while estimating non-tariff income, a nominal increase of

2% for components of non-tariff income for FY 2011-12 has been considered,

except interest income, for which MSETCL considered an average interest rate of

8%, i.e., rate of government securities on the forecasted balance of contingency

reserves and special reserves.


Control Period


5.11.2. Further, MSETCL submitted that it hasn’t considered an amount of Rs 48 crore

towards non-refundable deposits and ‘excess provision written back’ in non-tariff

income for FY 2012-13 vis-a-vis FY 2011-12 as the same are not repetitive in

nature.

5.11.3. Also, MSETCL submitted that though it has considered value received from sale of

scrap as part of non-tariff income, it requested the Commission to consider only

profit on sale of scrap and not revenue from sale of scrap (i.e., salvage value of 10%

of the retired asset) as part of non-tariff income.

5.11.4. Further, MSETCL submitted that revenue from open access charges would reduce

in FY 2012-13 vis-a-vis actual revenue of Rs 109.56 crore during FY 2011-12. This

is due to change in methodology for levying open access charges to distribution

licensees procuring power on short-term basis as described in the Order dated 21

May, 2012 in Case No. 51 of 2012 in the matter of "Suo motu determination of

Transmission Tariff for Intra-State Transmission System (InSTS) for FY 2012-13 of

the second MYT Control Period". As a result, transmission charges will be levied

on short-term open access and power exchange transactions undertaken by entities

other than the distribution licensees. This will lead to a reduction in income from

open access charges from FY 2012-13 onwards. MSETCL requested the

Commission to approve revenue from open access charges as per Order dated 11

January, 2013 in Case No. 137 of 2011.

5.11.5. The Commission scrutinized MSETCL’s submissions in this regard and accepts the

rationale of assuming 2% increase on certain components of non-tariff income.

Further, the Commission agrees with MSETCL’s methodology of estimating

interest income earned on contingency reserves and special reserves. Also, the

Commission accepts MSETCL’s submission on not considering ‘excess provision

written back’ and ‘non-refundable deposits’ in non-tariff income for FY 2012-13

due to their non-recurring nature.

5.11.6. As regards to income from sale of scrap, the Commission considered an increase of

2% over the approved amount for FY 2011-12 to estimate income from sale of scrap

for FY 2012-13. As detailed in para 4.17.14, the income from sale of scrap

considered by the Commission doesn’t assume revenue proceeds from sale of scrap

items which are classified as capitalised assets. It comprises of profit earned on sale


Control Period


of scrap and revenue proceeds from sale of scrap items which are classified as

revenue expenditure. Thus, the approved amount of FY 2011-12 is considered for

estimating income from sale of scrap for FY 2012-13. The same will be scrutinised

based on actual information at the time of Truing up of FY 2012-13.

5.11.7. Upon the Commission’s query, MSETCL provided details of open access charges

collected from transmission network users during FY 2012-13, which are

considered by the Commission in this Order. However, the Commission will

consider audited figures at the time of final Truing up.

5.11.8. The non-tariff income for FY 2012-13 approved by the Commission is provided

below:-

Table 85: Non Tariff Income for FY 2012-13 approved by the Commission (Rs crore)

Particulars

Approved in

Case No. 106

of 2012

Submitted by

MSETCL

Approved in this

Order

Interest on Contingency

Reserve Investments

Not

Appli

cable

17.25 17.09

Interest on Other

Investments 4.93 4.93

Other/Miscellaneous

receipts 100.70 102.42

Other receipts 1.42 0.00

Interest on staff loans &

Advances 0.30 0.00

Sale of Scrap 25.14 14.9

Rent income 0.82 0.81

Revenue from ST Open

Access Charges 82.05 52.04

Total 191.09 232.60 192.21

5.12. Income from wheeling received from Goa and Dadra Nagar

5.12.1. MSETCL submitted that income received from Goa and Dadra Nagar during FY

2011-12 has been considered during FY 2012-13 as well.

5.12.2. The Commission approves MSETCL’s submission in this regard. However, actual

income received from Goa and Dadra Nagar based on audited annual accounts will

be considered at the time of final Truing up.


Control Period


Table 86: Income from wheeling received from Goa and Dadra Nagar for FY 2012-13



No. 106 of 2012

Submitted by

MSETCL

Approved in

this Order

Less: Income from Goa &

Dadra Nagar wheeling charges 20.52 26.30 26.30

5.13. Summary of Estimated Aggregate Revenue Requirement for FY 2012-13

5.13.1. Based on the discussion in the previous sections, the ARR projections approved by

the Commission for FY 2012-13 has been summarised below:

Table 87: Summary of Aggregate Revenue Requirement for FY 2012-13 approved by


Sr.

No. Particulars

Approved in

Case No. 106

of 2012

Submitted

by MSETCL

Approved in this

Order

1 Operation & Maintenance

Expenses 1,115.42 1,115.42 1,179.92

2 Depreciation Expenses

a) Depreciation 501.50 560.49 539.58

b) Advance against

depreciation 155.65 418.33 274.21

3 Interest on Long-term Loan

Capital 464.41 504.52 668.09

4 Interest on Working Capital

and on consumer security

deposits 71.1 80.34 79.11

5 Other Interest and finance

charges 18.50 18.50 18.50

6 Other Expenses 1.23 1.12 1.12

7 Income Tax 157.34 275.40 153.25

8 Contribution to contingency

reserves 40.11 40.20 37.99

9 Total Revenue

Expenditure 2,525.26 3,014.32 2,951.78

10 Return on Equity Capital 629.04 641.38 612.71

11 Aggregate Revenue

Requirement 3,154.30 3,655.70 3,564.49

12 Less: Non Tariff Income 178.15 232.60 192.21

13 Less: Income from Goa &


charges 20.52 26.30 26.30

14 Aggregate Revenue

Requirement from

Transmission Tariff 2,955.63 3,396.80 3,345.98


Control Period


5.14. Revenue Gap for FY 2012-13

5.14.1. The Commission calculated total revenue recovered by MSETCL during FY 2012-

13 in the following manner:

a. For first two months of FY 2012-13, MSETCL recovered transmission

Tariff as per InSTS Tariff Order dated 10 September, 2010 in Case No. 120

of 2009, i.e., Rs 188.69 crore per month.

b. From June 2012 onwards, transmission Tariff was recovered using InSTS

Tariff Order dated 21 May, 2012 in Case No. 51 of 2012, i.e., Rs 296.07

crore per month

5.14.2. Therefore, the total revenue from transmission Tariff recovered by MSETCL is Rs

3,338.08 crore.

5.14.3. Based on the ARR requirement, cumulative revenue gap till FY 2011-12 and

estimated revenue recovery during FY 2012-13, revenue gap is calculated as per the

table below:

Table 88: Cumulative Revenue Gap till FY 2012-13 approved by the Commission (Rs

crore)

Particulars FY 2012-13

Net ARR 3,345.98

Revenue from existing Transmission Tariff 3,338.08

Revenue (Gap)/surplus for current year (7.90)

Cumulative revenue gap till previous year (1,128.91)

Un-recovered cumulative Revenue (Gap)

till FY 2012-13 (1,136.81)


Control Period


6. AGGREGATE REVENUE REQUIREMENT FOR MYT SECOND

CONTROL PERIOD

6.1. Background

6.1.1. MSETCL has submitted details of its projected expenses over the MYT Second

Control Period from FY 2013-14 to FY 2015-16 under various heads, viz., O&M

expenses, depreciation, interest on loans, interest on working capital, etc., in the

Petition. The Commission has carried out prudence check for approval of

expenditure for each of the above items and Aggregate Revenue Requirement of

MSETCL for the MYT Second Control Period from FY 2013-14 to FY 2015-16, in

the following sections.

6.2. O&M expenses

6.2.1. MSETCL submitted that the norms for O&M expenses for existing and new

transmission Licensees for the period from FY 2013-14 to FY 2015-16, are

prescribed in the MYT Regulations, 2011.

6.2.2. MSETCL stated that in the approach paper dated 25 September, 2009, the

Commission had proposed to consider actual O&M expense per bay and line based

on audited annual accounts for five years ending 31 March, 2006. This was

escalated considering CPI and WPI indices to arrive at O&M expenses for the

subsequent years.

6.2.3. MSETCL submitted that O&M expenses norms in MYT Regulations, 2011 are

insufficient to capture the escalation required to compensate for the increasing WPI

and CPI indices. In addition to the above, MSETCL pointed out the fact that during

the erstwhile MSEB era, the R&M expenses were on a lower side. As these

expenses were used as a base for computing the norms for O&M expenses for the

Second Control Period, the norms are not a true reflection of actual O&M expenses

incurred by MSETCL.

6.2.4. Further, MSETCL submitted that O&M expenses norms for MSETCL are way

below the norms of O&M expenses for TPC-T and RInfra-T in MYT Regulations,

2011. MSETCL stated that actual O&M expenses for the company are

comparatively much higher due to its vast network, presence in difficult terrain and


Control Period


remote areas.

6.2.5. MSETCL submitted that in the present Petition, it has computed O&M expenses

considering norms specified in MYT Regulations, 2011. MSETCL also stated that

the number of bays and circuit kilometres of the transmission network considered in

this Petition are different from that projected in the Business Plan due to

consideration of Power Transformer and Station Transformer bays in the Petition

which was not considered during Business Plan submission. Hence, the O&M

expenses computed for the Second Control Period are slightly higher than O&M

expenses approved by the Commission in its Business Plan Order dated 11 January,

2013 in Case No. 137 of 2011. The summary of O&M expenses for the Second

Control Period as submitted by MSETCL is provided in the table below;

Table 89: O&M expenses submitted by MSETCL (Rs crore)

Particulars

Business

Plan

Order MYT

Petition

Business

Plan

Order MYT

Petition

Business

Plan

Order MYT

Petition

FY 2013-14 FY 2014-15 FY 2015-16

O&M cost for

Ckt. Kms.

Including HVDC

system 137.90 143.61 155.32 164.18 172.96 182.10

O&M cost for

Bays 1,191.91 1,257.63 1,361.20 1,469.03 1,584.36 1,696.55

Total O&M cost 1,329.81 1,401.24 1,516.12 1,633.21 1,757.32 1,878.65

6.2.6. Further, MSETCL submitted that the impact of wage agreement which happens

every five years also needs to be considered in O&M expenses, as it is an

uncontrollable factor. However, its impact is not included in the O&M norms

stipulated in the MYT Regulations, 2011. Thus, MSETCL prayed to consider the

same on actual basis over and above the O&M norms specified in MYT

Regulations, 2011.

6.2.7. The Commission has taken note of the submissions of MSETCL in regard to O&M

expenses. As regards MSETCL’s submission on O&M norms, the Commission

reiterates the stand taken in the Business Plan Order dated 11 January, 2013 in Case

No. 137 of 2011 that the norms for O&M expenses for MSETCL have been

specified in the MYT Regulations, 2011 after appropriate deliberations and

considering the submissions of MSETCL while formulating the said Regulations.


Control Period


Further, the present proceedings have limited scope of modifying the provisions set

out in MYT Regulations, 2011. Hence, changes in the Regulations cannot be dealt

with in this proceeding and thereby, MSETCL’s claim for review of O&M norms is

not considered.

6.2.8. Further, the Commission would deliberate on the impact of wage revision on O&M

expenses at an appropriate stage in case wage revision is undertaken.

6.2.9. However, for computation of O&M expenses the Commission has deducted the no.

of bays and ckt. Km pertaining to disallowed capex. schemes and unutilised bays

for the respective years of MYT Second Control Period (FY 2013-14 to FY 2015-

16).

6.2.10. The Commission has considered the applicable O&M norms as per Regulation 61.6

of MYT Regulations, 2011, along with transmission line length (ckt-km) and bays

for schemes considered for approval of capitalisation by the Commission. The

O&M expenses as approved by the Commission are as follows:

Table 90: O&M expenses approved for the Second Control Period (Rs. crore)

O&M expenses Units FY 2013-14 FY 2014-15 FY 2015-16

For Line

Distance of line (Average)

HVDC Ckt km 1,504 1,504 1,504

765 KV Ckt km 0 50 100

400 KV Ckt km 7,515 8,020 8,462

>66 KV and <400 KV Ckt km 30,686 33,613 36,775

66 KV and less Ckt km 3,270 3,270 3,270

MERC Norm

HVDC Rs. Lakh/Ckt km 1,667 1,763 1,863

765 KV Rs. Lakh/Ckt km 0.83 0.88 0.93

400 KV Rs. Lakh/Ckt km 0.59 0.63 0.66

>66 KV and <400 KV Rs. Lakh/Ckt km 0.24 0.25 0.26

66 KV and less Rs. Lakh/Ckt km 0.14 0.15 0.16

For Bay

Number of bays (Average)

765 KV Number 0.00 4.50 163.94

400 KV Number 298.00 323.50 117.11

>66 KV and <400 KV Number 4,479.50 4,925.00 16.97

66 KV and less Number 6,390.50 6,794.00 3.55

MERC Norm

765 KV Rs. Lakh/ Bay 146.68 155.07 163.94


Control Period


O&M expenses Units FY 2013-14 FY 2014-15 FY 2015-16

400 KV Rs. Lakh/ Bay 104.78 110.78 117.11

>66 KV and <400 KV Rs. Lakh/ Bay 15.19 16.06 16.97

66 KV and less Rs. Lakh/ Bay 3.17 3.36 3.55

O&M Expenses Rs. Crore 1,334.49 1,542.12 1,774.95

6.3. Capital expenditure and capitalisation

6.3.1. MSETCL submitted that in the present Petition, capitalisation is claimed at the same

level as that of capitalisation approved by the Commission in its Business Plan

Order dated 11 January, 2013 in Case No. 137 of 2011.

6.3.2. Further, MSETCL submitted that the capital expenditure plan submitted in the

Business Plan Petition was prepared based on the inputs received from STU, which

was presented before the Standing Committee.

6.3.3. MSETCL submitted the capitalisation for Second Control Period as given in the

table below:

Table 91: Capitalisation submitted by MSETCL (Rs crore)

Particulars

Business

Plan Order MYT

Petition

Business

Plan Order MYT

Petition

Business

Plan

Order MYT

Petition

FY 2013-14 FY 2014-15 FY 2015-16

DPR 3,362.27 3,362.27 3,901.02 3,901.02 3,121.91 3,121.91

Non-DPR 78.59 78.59 75.15 75.15 65.98 65.98

Total 3,440.86 3,440.86 3,976.17 3,976.17 3,187.89 3,187.89

6.3.4. The Commission conducted detailed scrutiny of the schemes provided by MSETCL

to be capitalised in Second Control Period from FY 2013-14 to FY 2015-16. The

Commission considered DPR schemes mentioned in Form 4.4 submitted by

MSETCL. During scrutiny, the Commission observed that MSETCL included

capital expenditure and capitalisation of three joint venture (JV) schemes, i.e., JVs

with JPTL, MEGPTCL and Sterlite in the present Petition. However, the

Commission views that these JVs are separate entities and capitalisation w.r.t these

entities would be submitted in their respective MYT Petitions. Therefore, the

Commission excluded capitalisation pertaining to these JVs in MSETCL’s


Control Period


capitalisation.

6.3.5. Further, MSETCL claimed capitalisation for wind evacuation schemes namely, ‘

Evacuation of power from wind mills at Mogarpada, Gangapur, Shivajinagar, Ayne,

Aundhewadi, Khandke, Balsane, Kolegaon and Shrigonda’ and ‘Evacuation of

power from wind mills at Revangaon, Ghotikhurd, Ghatnandre, Gudepanchgani,

Tasgaon, Shirala, Sadawaghapur, Kas, Vita and Miraj’ during the Second Control

Period. In response to the query related to these schemes, MSETCL replied that

these schemes are yet to be capitalised in future years and the information related to

the assets taken over by MSETCL and payment made to the developer will be

submitted once the scheme is capitalised in future years. The Commission

understand that 50% of the funding of wind schemes is given by Maharashtra

Energy Development Agency (MEDA). Therefore, the Commission considered the

rest 50% of the amount of claimed capitalisation pertaining to such wind evacuation

schemes.

6.3.6. Further, the Commission observed that the scheme 400 kV 125 MVAR Bus

Reactors with Bay at “Karad, Nasik, Lonikand” s/s was not submitted to the

Commission for approval; therefore, the Commission disallowed the same.

6.3.7. In regard to capitalisation claimed in the MYT Second Control Period (FY 2013-14

to FY 2015-16) for schemes specified in para 5.3.3, the Commission has disallowed

the same on the basis as specified in para 5.3.4. The capitalisation amounts

disallowed in this regard were Rs 35.82 crore, Rs 43 crore and Rs 17.90 crore for

FY 2013-14, FY 2014-15 and FY 2015-16 respectively.

6.3.8. The Commission in order to ascertain a realistic capitalisation, enquired if there are

any schemes being proposed by MSETCL which might not get executed during the

MYT Second Control Period (FY 2013-14 to FY 2015-16). In reply MSETCL vide

email dated 13 December, 2013 informed that 11 No. sub-station schemes may not

get capitalised in this period. Hence, the Commission disallowed the capitalisation

of Rs 24.21 crore. Rs 48.01 crore and Rs 72.01 crores for FY 2013-14, FY 2014-15

and FY 2015-16 respectively.

6.3.9. Accordingly, capitalisation approved for the Second Control Period is given in the

table below:


Control Period


Table 92: Capitalisation approved by the Commission (Rs crore)

Particulars

Petition Approved Petition Approved Petition Approved

FY 2013-14 FY 2014-15 FY 2015-16

Total 3,440.86 3,362.00 3,976.17 3,831.92 3,187.89 3,022.96

6.4. Depreciation

6.4.1. MSETCL submitted that it has computed depreciation considering depreciation

rates provided in MYT Regulations, 2011.

6.4.2. MSETCL also submitted that as per Regulation 33.3 of MYT Regulations, 2011,

repayment of long term loans is considered equivalent to the estimated depreciation.

6.4.3. MSETCL submitted that while approving depreciation for MSETCL in its Business

Plan Order dated 11 January, 2013 in Case No. 137 of 2011, the Commission had

computed depreciation based on rates as per MYT Regulations, 2011 and had not

considered AAD as a component of ARR.

6.4.4. MSETCL further submitted that it understands that the provision of AAD has been

removed by revising the depreciation rates. However, MSETCL has planned to fund

its capital expenditure requirement through 80% debt over the Second Control

Period. The main philosophy behind the concept of AAD in CERC Tariff

Regulations, 2004 was to bridge the gap between loan repayment and depreciation

in a year. Since MSETCL is funding 80% of capital expenditure by debt, the

depreciation calculated as per the depreciation rates mentioned in MYT

Regulations, 2011 will always be lesser than the actual repayment requirement of

loans. MSETCL pointed out that the depreciation rates provided in MYT

Regulation, 2011 remain same irrespective of the funding pattern of utility. Hence,

in case of Utilities having higher debt, loan repayment requirement will always be

more than the depreciation.

6.4.5. MSETCL submitted that it does not have any revenue source other than

transmission Tariff and hence if AAD is disallowed, it will either result in erosion

of equity of MSETCL or MSETCL might not be able to meet its repayment

obligation which will adversely impact the credit rating of MSETCL.

6.4.6. Therefore, MSETCL prayed before the Commission to approve AAD to facilitate

MSETCL to claim the excess of actual repayment made over the depreciation

amount approved for the year. As an alternative, MSETCL proposed that the


Control Period


Commission may consider debt: equity ratio of 70:30 and approve 15.5% ROE on

balance 10% of its debt funding, while considering it as normative equity. MSETCL

stated that this approach will be consistent with MYT Regulations, 2011, as

depreciation rates for the said Regulations have been arrived at considering a debt:

equity ratio of 70:30.

6.4.7. Depreciation as submitted by MSETCL is provided below:

Table 93: Depreciation as submitted by MSETCL (Rs crore)


Depreciation 1,102.75 1,285.25 1,455.87

Advance against depreciation 32.41 0.00 115.57

Depreciation including AAD 1,135.16 1,285.25 1,571.45

6.4.8. The Commission has taken note of the submission of MSETCL in regard to advance

against depreciation. However, the Commission opines that there is no provision for

AAD in the MYT Regulations, 2011 which was notified after appropriately

deliberating and considering the submissions of stakeholders, including MSETCL.

Therefore, the approach specified would not be subject to any change during the

current proceeding.

6.4.9. The Commission, for the purpose of the present Order has considered closing GFA

for FY 2012-13 as opening GFA for FY 2013-14. Capitalisation as approved in para

6.3.9 has been considered as addition in GFA for the years FY 2013-14 to FY 2015-

16.

6.4.10. Upon the Commission’s query on the basis for computation of retirement of assets,

MSETCL explained that it has submitted the same on the basis of approved

retirement of assets in the Business Plan Order dated 11 January, 2013 in Case No.

137 of 2011. Further, MSETCL stated that in the Business Plan Petition it had

computed retirement of assets by estimating average asset retirement for FY 2009-

10 and FY 2010-11 as a percentage of opening GFA and (i.e., 1.12% of the opening

GFA) and applying the same on estimated opening GFA for different years of the

Second Control Period. The Commission has derived asset retirement for different

years of the Second Control Period by computing average asset retirement as

percentage of opening GFA based on approved numbers for FY 2009-10, FY 2010-

11 and FY 2011-12 and then applying the same on estimated opening GFA for


Control Period


different years of the Second Control Period. However, at the time of Truing up, the

Commission will consider actual retirement of assets on the basis of the audited

annual accounts.

6.4.11. The depreciation expense as approved by the Commission is as follows:

Table 94: Depreciation approved by the Commission (in Rs. crore)


Opening Gross Fixed Assets (GFA) 19,146.45 22,289.58 25,861.60

Addition of Gross Fixed Assets 3,362.00 3,831.92 3,022.96

Retirement of assets 218.87 259.90 310.43

Closing Gross Fixed Assets 22,289.58 25,861.60 28,574.13

Depreciation 1,072.61 1,250.94 1,411.53

6.5. Interest on long-term loans

6.5.1. MSETCL proposed to fund its capital expenditure requirement through a debt:

equity ratio of 80:20. However, MSETCL may revise the funding pattern to a debt:

equity ratio of 70:30 in case MSTECL’s cash flow increases due to change in

funding pattern.

6.5.2. MSETCL submitted that it has first considered existing loan agreements from LIC,

JICA, IFC, Bank of Maharashtra and Oriental bank of Commerce to fund capital

expenditure. The rest of the debt funding requirement is assumed to be funded from

REC and PFC.

6.5.3. MSETCL submitted that it has considered an interest rate of 12.25% for loans

proposed to be drawn from REC and PFC. For other sources of loan, it has

considered existing rates of interest as provided in Form 6 of the data formats

submitted with the Petition.

6.5.4. MSETCL submitted that the Commission had directed MSETCL to submit details

of outstanding loans pertaining to retired assets along with documentary evidence,

as per the first proviso to Regulation 33.1 of MYT Regulations, 2011, in its MYT

Petition. MSETCL submitted that it analysed its actual loan portfolio and observed

that none of its loans have repayment schedule of more than 17 years. Further,

MSETCL stated that majority of value of assets is towards plant and machinery for

which the applicable depreciation rate is 5.28%, which effectively means that the

life of the asset would be 17 years. MSETCL also provided an illustration in the

Petition to demonstrate that considering 80% debt and repayment equal to

depreciation, the loan would be repaid in 16th year itself. This implies that there


Control Period


will be no loan outstanding at the end of the life of the asset.

6.5.5. Hence, MSETCL requested the Commission not to deduct loan on the estimated

retired assets during the Second Control Period. Further, MSETCL submitted that in

case there is any actual loan outstanding towards assets being retired or replaced,

the details of the same would be submitted to the Commission.

6.5.6. However, for the purpose of computation of interest expense, MSETCL submitted

that it has considered deduction of loan corresponding to 80% value of retired assets

in its submission.

6.5.7. Further, MSETCL submitted that it has considered an interest rate of 11.5% on

closing work in progress of respective years to compute interest expenses

capitalized. Thereafter, after accounting for capitalized interest expenses and

considering other interest and finance charges as approved by the Commission in its

Business Plan Order dated 11 January, 2013 in Case No. 137 of 2011, MSETCL has

submitted total interest expenses including interest and finance charges for the

Second Control Period as given in the following table:

Table 95: Interest expenses as submitted by MSETCL (Rs crore)


Net interest expense (after capitalisation) 752.39 1,017.49 1,226.17

Other interest and finance charges 16.91 19.21 16.22

Total 769.30 1,036.7 1,242.39

6.5.8. The Commission has considered the closing balance of loan for FY 2012-13 as the

opening balance of loan for FY 2013-14. From FY 2013-14 to FY 2015-16, the

Commission has considered loan addition for each of the year as 80% of the

approved capitalisation for the respective year.

6.5.9. Further, the Commission noted that the Regulation 33 of the MYT Regulations,

2011 specifies that the repayment of loan shall be equal to the depreciation allowed

in the respective year and repayment to be considered from first year of commercial

operation of the project. The said Regulation is reproduced below:

“33.3 The repayment for the year of the tariff period FY 2011-12 to FY 2015-16

shall be deemed to be equal to the depreciation allowed for that year:

33.4 Notwithstanding any moratorium period availed by the Generating Company

or the Transmission Licensee or the Distribution Licensee, as the case may be, the

repayment of loan shall be considered from the first year of commercial operation

of the project and shall be equal to the annual depreciation allowed.”

6.5.10. Accordingly, the Commission has considered the repayment of loan equal to


Control Period


depreciation as approved for respective years.

6.5.11. The Commission has considered reduction in loan at 80% of value of retired asset.

However, the same will be trued up based on the audited annual accounts at the time

of Truing up.

6.5.12. Regulation 33 of the MYT Regulations, 2011 specifies that the rate of interest used

for calculation of interest on long term loans shall be weighted average rate of

interest on the basis of actual loan portfolio at the beginning of each year. Further,

the interest expense should be calculated on the average loan availed in a particular

year. The said Regulation is reproduced below:

“33.5 The rate of interest shall be the weighted average rate of interest calculated

on the basis of the actual loan portfolio at the beginning of each year applicable to

the Generating Company or the Transmission Licensee or the Distribution

Licensee:

Provided that if there is no actual loan for a particular year but normative loan is

still outstanding, the last available weighted average rate of interest shall be

considered:

Provided further that if the Generating Company or the Transmission Licensee or

the Distribution Licensee, as the case may be, does not have actual loan, then the

weighted average rate of interest of the Generating Company or the Transmission

Licensee or the Distribution Licensee as a whole shall be considered.

33.6 The interest on loan shall be calculated on the normative average loan of the

year by applying the weighted average rate of interest.”

6.5.13. The Commission has computed the interest rate applicable for each year based on

the weighted average interest rate of actual loan portfolio admitted by the

Commission at the beginning of each year. Further, the Commission has applied the

weighted average interest rate to the average of opening balance and closing balance

of loan for each year to compute the interest expense on long term loans for Second

Control Period. The approved interest expense is as shown below

Table 96: Interest on long term loans approved by the Commission (in Rs crore)

Particulars FY 2013-14 FY 2014-15 FY 2015-16 Opening balance of loan 7,008.68 8,450.57 10,057.24

Loan additions 2,689.60 3,065.54 2,418.37

Loan repayment 1,072.61 1,250.94 1,411.53

Closing balance of loan 8,450.57 10,057.24 10,815.74

Interest rate applicable 11.36% 11.58% 11.71%

Interest Expense 878.22 1,071.50 1,222.39


Control Period


6.6. Interest on working capital

6.6.1. MSETCL submitted that it has computed interest on working capital based on the

normative parameters as per Regulation 35.2(b) of the MYT Regulations, 2011.

MSETCL further submitted that interest on working capital has been calculated

considering State Bank Advance Rate (SBAR), at the time of submission of the

Petition, i.e., 14.45%.

6.6.2. As regards the book value of stores for estimating working capital requirement,

MSETCL submitted that the Commission had considered 1% of GFA approved for

the respective year as sum of book value of stores in Business Plan Order dated 11

January, 2013 in Case No. 137 of 2011. However, actual value of one-twelfth of

book value of stores based on audited annual accounts for past years is much higher

than one-twelfth of 1% of opening GFA, as depicted in the table below:

Table 97: Comparison of 1/12th

of book value of stores as submitted by MSETCL (Rs

crore)

Particulars FY

2008-09

FY

2009-10 FY

2010-11 FY

2011-12 Actual value of 1/12 of book value of

stores, materials and supplies (A) 18.71 18.88 17.20 27.12

Approved opening GFA for the year (B) 9,370.79 9,924.73 10,945.93 13,026.01

1/12 of 1% of opening GFA (C ) 7.81 8.27 9.12 10.86

Difference D= A- C 10.90 10.61 8.08 16.26

6.6.3. MSETCL submitted that it is evident from the above table that actual value of 1/12

of book value of stores, materials and supplies in the previous years is much higher

than 1/12 of 1% of opening GFA for the year under consideration.

6.6.4. MSETCL further submitted that although it has considered the book value of store

based on 1% of the opening GFA during the year in accordance with the principle

adopted by the Commission in the Business Plan Order dated 11 January, 2013 in

Case No.137 of 2011, it requested the Commission to consider the One-Twelfth of

the Book Value of Stores, Materials and Supplies as Rs. 27.12.

6.6.5. MSETCL submitted that it does not envisage any security deposit to be taken from

the users of its transmission system and hence interest on security deposit is not

been considered for the purpose of computation of working capital requirement.

6.6.6. The detailed computation of interest on working capital as submitted by MSETCL

is provided in the table below;


Control Period


Table 98: Interest on working capital as submitted by MSETCL (Rs crore)


One-twelfth of the amount of Operations

and Maintenance Expenses 116.77 136.10 156.55

One-twelfth of the sum of the book value

of stores, materials and supplies 16.41 19.10 22.20

One and a half months of the expected

revenue from transmission charges at the

prevailing tariffs 518.67 615.38 722.69

Less:

Amount of Security Deposit

From Transmission System users 0.00 0.00 0.00

Total Working Capital 651.86 770.58 901.43

Computation of working capital interest

Rate of Interest (% p.a.) 14.45% 14.45% 14.45%


6.6.7. The Commission noted the submissions made by MSETCL and computed the total

working capital requirement in accordance with the provisions of the MYT

Regulations, 2011.

6.6.8. The Commission considered sum of book value of stores for FY 2013-14 to FY

2015-16 same as that approved for FY 2012-13. For FY 2013-14 to FY 2015-16,

the Commission considered interest rate on working capital as 14.45%, being State

SBAR at the time of filing the Petition. Further, instead of considering ARR for the

respective year as expected revenue from transmission charges, the Commission

considered annual recovery of ARR for MSETCL as approved by the Commission

in its InSTS Tariff Order dated 13 May, 2013 in Case No. 56 of 2013, as

transmission Tariff and actual recovery from transmission charges is according to

the InSTS Tariff Order. In case of any revision in Tariff in future, the same will be

considered as per the Tariff specified in InSTS Tariff Order for the respective year.

6.6.9. Further, as confirmed by MSETCL, the Commission didn’t consider any security

deposit from consumers for computation of working capital requirement.


Control Period


Table 99: Interest on working capital as approved by the Commission (Rs crore)


Interest on working

capital 113.05 112.15 127.39

6.7. Contribution to contingency reserves

6.7.1. MSETCL submitted that it has calculated contribution to contingency reserves at

0.25% of opening GFA as provided in the Regulation 61.1 of MYT Regulations,

2011. Contribution to contingency reserve as submitted by MSETCL is given in the

table below:

Table 100: Contribution to Contingency Reserves submitted by MSETCL (Rs crore)



6.7.2. The Commission considered contribution to contingency reserves at 0.25% of the

opening GFA in accordance with the provisions of the MYT Regulations, 2011 and

based on the capitalisation approved by the Commission. Accordingly, the approved

contribution to contingency reserves is as follows:

Table 101: Contribution to contingency reserves as approved by the Commission (Rs

crore)



6.8. Return on equity (RoE)

6.8.1. MSETCL submitted that it has projected RoE from FY 2013-14 to FY 2015-16 in

accordance with the MYT Regulations, 2011. MSETCL has computed RoE on 20%

of capitalisation proposed for the period. Further, MSETCL has also considered

reduction in RoE on the estimated asset retirement during the period in accordance

with the approach stipulated in the Business Plan Order dated 11 January, 2013 in

Case No. 137 of 2011.

6.8.2. RoE projected by MSETCL for FY 2013-14 to FY 2015-16 is shown in the table

below:


Control Period


Table 102: Return on Equity as submitted by MSETCL (Rs crore)


Regulatory equity at the beginning of the

year 4,945.35 5,590.75 6,334.00

Capitalisation during the year 3,440.86 3,976.17 3,187.89

Equity portion of capitalisation during the

year 688.17 795.23 637.58

Consumer contribution and grants used

during the year for capitalisation 0.00 0.00 0.00

Reduction in equity capital on account of

retirement/ replacement of assets 43.77 51.98 62.09

Regulatory equity at the end of the year 5,590.27 6,334.00 6,909.49

Return on equity computations

Return on Regulatory equity at the


Return on equity portion of capitalisation

during the year and reduction in RoE on

account of retirement / replacement of

assets 49.94 57.60 44.60

Total return on Regulatory equity 816.63 924.17 1,026.37

6.8.3. The Commission has computed RoE at the rate of 15.50 % of the equity, in

accordance with the MYT Regulations, 2011 on the opening equity of the year and

on 50% of the projected levels of equity portion of assets capitalised during each

year of the Second Control Period.

6.8.4. The Commission has considered regulatory equity at the end of FY 2012-13 as

approved by the Commission as the opening balance of regulatory equity for FY

2013-14.

6.8.5. Further, in accordance with the approach followed in Business Plan Order dated 11

January, 2013 in Case No. 137 of 2011, the Commission considered reduction in

equity on account of retirement of assets to the extent of 20%.

6.8.6. The return on equity as approved by the Commission for the Second Control Period

is as follows:


Control Period


Table 103: Return on equity as approved by the Commission (Rs crore)

Particulars FY 2013-14 FY 2014-15 FY 2015-16 Regulatory equity at the

beginning of the year 4,732.42 5,361.05 6,075.45

Equity portion of assets

capitalised during the year 672.40 766.38 604.59

Reduction in Regulatory equity

due to retirement of assets 43.77 51.98 62.09

Regulatory equity at the end of

the year 5,361.05 6,075.45 6,617.96

Return on regulatory equity at the


Return on 50% of equity portion

of capital expenditure capitalised

during the year 48.72 55.37 42.04

Total return on regulatory

equity 782.24 886.33 983.74

6.9. Income tax

6.9.1. MSETCL submitted that the Commission in its Business Plan Order dated 11

January, 2013 in Case No. 137 of 2011 had considered income tax at the same level

as approved by the Commission for FY 2010-11, i.e., Rs 103.67 crore, since that

was the last year for which audited annual accounts have been provided and

prudence check has been undertaken by the Commission in accordance with

Regulation 34.1 of the MYT Regulations, 2011.

6.9.2. MSETCL submitted that now that audited statements are available for FY 2011-12,

it has considered income tax actually paid in FY 2011-12 as the income tax

obligation for each year of the Second Control Period.

6.9.3. Further, MSETCL prayed to the Commission to facilitate reimbursement of income

tax on a quarterly basis, in addition to the transmission charges for the period FY

2013-14 to FY 2015-16.

Table 104: Income tax calculation as submitted by MSETCL (Rs crore)


Income tax 179.67 179.67 179.67

6.9.4. For computation of income tax for FY 2012-13 to FY 2015-16, the MYT

Regulations, 2011 specifies that the Commission may provisionally approve income

tax payable for each year of the Second Control Period based on the actual income

tax payable as per the latest audited annual accounts and the variation between the

actual and approved income tax shall be reimbursed at the time of mid-term


Control Period


performance review. The said Regulation is reproduced below for reference:

“34.1 The Commission in its MYT Order shall provisionally approve Income Tax

payable for each year of the Control Period, if any, based on the actual income tax

paid on permissible return as allowed by the Commission relating to electricity

business regulated by the Commission, as per latest Audited Accounts available for

the applicant, subject to prudence check.

...

34.2 Variation between Income Tax actually paid and approved, if any, on the

income stream of the regulated business of Generating companies, Transmission

licensees and Distribution licensees shall be reimbursed to /recovered from the

Generating Companies, Transmission Licensees and Distribution Licensees, based

on the documentary evidence submitted at the time of Mid-term Performance

Review and MYT Order for the third Control Period, subject to prudence

check."{Emphasis added}

6.9.5. In accordance with the MYT Regulations, 2011, income tax for FY 2013-14 to FY

2015-16 will have to be considered at the same level as approved by the

Commission for FY 2011-12, i.e., Rs 179.69 crore. Further, the Commission will

consider actual income tax paid by MSETCL at the time of mid-term review.

6.9.6. The income tax considered by the Commission for FY 2013-14 to FY 2015-16 is

summarised in the table below:-

Table 105: Income tax approved by the Commission (Rs. crore)

Particulars FY 2013-14 FY 2014-15 FY 2015-16 Income tax 179.67 179.67 179.67

6.9.7. Further, as per Regulation 34 of the MYT Regulations, 2011, the transmission

company is required to bill income tax under a separate head called “Income Tax

Reimbursement”. However, if income tax is allowed as separate reimbursement, it

may lead to some problems in claiming expenses with income tax authorities. In

view of this, the Commission in exercise of its powers under Regulation 100

“Power to remove difficulties” of the MYT Regulations, 2011 hereby orders that the

difficulty in implementing Regulation 34 of MYT Regulations, 2011 stands

removed by allowing the inclusion of income tax expense as part of Aggregate

Revenue Requirement.


Control Period


6.10. Non-Tariff income

6.10.1. MSETCL submitted that it has considered a nominal increase of 2% for non-tariff

income components other than interest income based on actual values of FY 2011-

12. For estimating interest income on contingency reserves, MSETCL has

considered an average interest rate of 8% on the forecasted balance of contingency

reserve for each year of the Second Control Period. For interest income on other

investments, MSETCL submitted that it has maintained the actual interest income

for FY 2011-12, over the entire Second Control Period, as future investments are

likely to be made only in government securities.

6.10.2. MSETCL submitted that the item under the head “Other/Miscellaneous Receipts”

for FY 2011-12 included an amount of Rs 48 crore towards non-refundable deposits

of past years transferred to P&L in FY 2011-12 and, therefore, the same is not

repetitive in nature. Hence, for projecting “Other/Miscellaneous Receipts” for

Second Control Period, MSETCL has considered “Other/Miscellaneous Receipts”

for FY 2012-13 as same as that for FY 2011-12 excluding Rs 48 crore. This was

then escalated at the same rate at 2% to arrive at the “Other/Miscellaneous

Receipts” for Second Control Period.

6.10.3. MSETCL submitted that it has considered value of sale of scrap including the profit

on sale of scrap as non-tariff income for different years of the Second Control

Period. However, MSETCL requested the Commission to consider only profit from

sale of scrap as non-tariff income and not the entire revenue from sale of scrap.

6.10.4. MSETCL further submitted that it has not considered “Excess provision written

back” of FY 2011-12 as part of non-tariff income as this item cannot be projected

for ensuing years of the Second Control Period.

6.10.5. MSETCL submitted that revenue from open access charges of Rs 109.56 crore in

FY 2011-12 would get reduced from FY 2012-13 onwards on account of change in

methodology for levying open access charges to Distribution Licensees procuring

power on short-term basis in accordance with the InSTS Tariff Order for FY 2012-

13, dated 21 May, 2012 in Case No. 51 of 2012. The relevant extract of the said

Order as produced by MSETCL in its Petition is reproduced below for easy

reference:

“21. It is clarified that the above transmission charges are payable by all long-term


Control Period


transmission system users irrespective of their actual utilisation (peak demand)

recorded during the period of operation. In case, actual utilisation of transmission

capacity by any long-term TSU varies from the allocated transmission capacity (i.e.,

Base TCR) then, the same shall be governed as per Regulation 66.4 of MERC MYT

Regulations. The relevant Regulation is reproduced as below.

...

66.4 The charges for intra State transmission usage shall be shared among various

TSUs in the following manner:

a) Existing long term TSU with recorded demand upto Base TCR (i.e., average of

CPD and NCPD) shall not be subjected to payment of short term transmission

charges.

b) Long term TSU with recorded demand greater than Base TCR but lower than

Contracted Capacity shall make payment of short term Transmission charges for

the recorded demand in excess of Base TCR.

c) Where the recorded demand of long term TSU is greater than Contracted

Capacity (termed as Transmission Capacity Right - TCR), the TSU shall bear

additional transmission charges as specified in MERC (Transmission Open Access)

Regulations, 2005, as amended from time to time:

Provided that short term transmission charges and additional transmission charges,

if payable or paid, as applicable in accordance with the clauses (a), (b) and (c)

above, by long term TSUs, shall be adjusted during subsequent billing period upon

availability of information regarding actual recorded demand by such long term

TSUs.”

“I] Applicability of Order

30. This Order shall be applicable with effect from 1 June, 2012 ...”

6.10.6. MSETCL submitted that there will be no transmission charge on Inter-State and

Intra-State short term open access and power exchange transactions of distribution

licensees with effect from 1 June, 2012. However, transmission charges will be

levied on short-term open access and power exchange transactions by generators,

CPP customers, etc. other than the four distribution licences. Hence, MSETCL

stated that from FY 2012-13 onwards, there will be reduction in open access


Control Period


charges because of the applicability of Order dated 21 May, 2012 in Case No. 51 of

2012. Therefore, for estimating revenue from open access charges, MSETCL has

considered the same value as submitted in the Business Plan Petition in Case No.

137 of 2011.

6.10.7. Accordingly, MSETCL estimated non-tariff income for various years of the Second

Control Period as per the table provided below:

Table 106: Non-Tariff income as submitted by MSETCL (Rs crore)


Interest on Contingency Reserve

Investments 20.82 25.09 30.04

Interest on Other Investments 4.93 4.93 4.93

Ancillary and Incidental Income 0.00 0.00 0.00

Other/Miscellaneous receipts 102.71 104.77 106.86

Other receipts 1.45 1.48 1.51

Interest on staff loans & Advances 0.30 0.31 0.31

Sale of Scrap 25.64 26.15 26.68

Income from Trading 0.00 0.00 0.00

Income from staff welfare activities 0.00 0.00 0.00

Revenue from ST Open Access

Charges 83.69 85.36 87.07

Rent 0.84 0.85 0.87

Total 240.39 248.94 258.28

6.10.8. The Commission accepts submissions made by MSETCL regarding non-tariff

income. The Commission also considered additional special reserve created as a

result of efficiency gains shared with MSETCL for FY 2011-12 to compute interest

on other investments for Second Control Period. Further, the Commission

considered 2% escalation factor per year submitted by MSETCL for projecting

other components of non-tariff income, which will be trued up based on the audited

annual accounts.


Control Period


Table 107: Non-Tariff income as approved by the Commission (Rs crore)

Particulars FY 2013-14 FY 2014-15 FY 2015-16 Interest on Contingency Reserve

Investments 20.53 24.67 29.49

Interest on Other Investments 4.93 6.83 8.74

Ancillary and Incidental Income 0.00 0.00 0.00

Other/Miscellaneous receipts 104.47 106.56 108.69

Other receipts 0.00 0.00 0.00

Interest on staff loans & Advances 0 0 0

Sale of Scrap 15.21 15.52 15.83

Income from Trading 0.00 0.00 0.00

Income from staff welfare activities 0.00 0.00 0.00

Rent 0.83 0.85 0.86

Revenue from Open Access Charges 53.08 54.14 55.22

Total 199.04 208.56 218.83

6.11. Income from wheeling charges received from Goa and Dadra Nagar

6.11.1. MSETCL submitted that income from Goa and Dadra Nagar has been considered

due to wheeling of power by Goa and Dadra Nagar. The estimated income from

Goa and Dadra Nagar for Second Control Period is considered as actual income

received in FY 2011-12 as provided below:

Table 108: Income from wheeling charges to be received from Goa and Dadra

Nagar as submitted by MSETCL (Rs crore)

Particulars FY 2013-14 FY 2014-15 FY 2015-16 Income from Goa and Dadra Nagar

wheeling charges 26.30 26.30 26.30 6.11.2. The Commission has considered “income from wheeling charges to be received

from Goa and Dadra Nagar” for Second Control Period at the same level as

approved by the Commission for FY 2011-12, as provided in the table below:

Table 109: Income from wheeling charges to be received from Goa and Dadra

Nagar as approved by the Commission (Rs crore)

Particulars FY 2013-14 FY 2014-15 FY 2015-16 Income from Goa and Dadra Nagar

wheeling charges 26.30 26.30 26.30


Control Period


6.12. Aggregate revenue requirement

6.12.1. Based on the analysis detailed out in the above paragraphs, the Commission has

approved the ARR for MSETCL for the Second Control Period from FY 2013-14 to

FY 2015-16 as given below:

Table 110: ARR of MSETCL approved by the Commission for MYT Second

Control Period (Rs crore)


Expenditure

Operations & Maintenance

Expenses 1,334.49 1,542.12 1,774.95

Depreciation 1,072.61 1,250.94 1,411.53

Advance against Depreciation - - -

Interest on long-term loan capital 878.22 1,071.50 1,222.39


Other interest and finance charges 16.60 18.64 15.56

Other expenses 1.14 1.17 1.19

Income Tax 179.67 179.67 179.67

Contribution to contingency

reserves 47.87 55.72 64.65

Total Revenue Expenditure 3,643.65 4,231.90 4,797.34

Return on Equity 782.24 886.33 983.74

Aggregate Revenue

Requirement 4,425.90 5,118.23 5,781.08

Less: Non-Tariff income 199.04 208.56 218.83

Less: Income from Goa and

Dadra Nagar wheeling charges 26.30 26.30 26.30

Less: Amortization of Income due

to Revaluation of Stocks 0.00 0.00 0.00

Aggregate Revenue

Requirement from

Transmission Tariff 4,200.55 4,883.37 5,535.95


Control Period


6.13. Transmission Tariff for Second Control Period

6.13.1. The Commission will consider the revenue gap till FY 2012-13 calculated in the

above para 5.14 while determining transmission Tariff in next Tariff Order.


Control Period


7. SUMMARY OF DIRECTIVES ISSUED BY THE COMMISSION

AND COMPLIANCE STATUS

7.1. Background

7.1.1. The Commission issued certain directives to MSETCL in its Order dated 18 May,

2012 in Case No. 169 of 2011. The summary of those directives and compliance is

given in the following paragraphs:

7.2. Assets put to use

Directive

7.2.1. The Commission had observed that a total of 535 bays commissioned by MSETCL

had remained unutilized. During the proceedings of Case No. 169 of 2011 MSETCL

had submitted that non utilization of bays by the distribution companies and lower

load growth was the reason for keeping spare bays. However, the Commission

noted that the consumers don’t get benefit out of these unutilised bays/assets,

though they are required to pay for it. Hence, the Commission directed MSETCL to

take immediate action to take up the issue of unutilised bays with the distribution

companies. MSETCL was also directed to account for the issue in the future capital

expenditures and provide for only reasonable capital expenditure; subject to the

technical requirement such as spare bays.

MSETCL’s Response

7.2.2. MSETCL submitted that it has informed MSEDCL vide its letter dated 8 May, 2013

for utilisation of its 33kV unutilised bays. MSETCL also requested MSEDCL to

utilise these unutilised bays as source feeders for 33kV s/s being constructed by

MSEDCL under Infra Plan-II. Further, MSETCL vide its letter dated 11 June, 2013,

informed the Commission about its communication of utilisation of spare bays by

MSEDCL. MSETCL vide same letter has also submitted information of spare

33kV, 22kV and 11kV bays at its EHV s/s to the Commission. MSETCL also

submitted various correspondences undertaken with MSEDCL and the Commission

regarding the same.

Commission’s Observations/Ruling

7.2.3. The Commission observed that MSETCL has taken adequate steps to take up


Control Period


this issue with MSEDCL and accordingly there is a higher utilisation of these

bays. MSETCL is directed to monitor and take appropriate steps for such kind

of non-utilisation of assets from time to time and bring to the notice of the

Commission, if necessary.

7.3. Submission of Business Plan

Directive

7.3.1. The Commission had directed MSETCL to submit its revised Business Plan Petition

immediately, without any delay and within a maximum time limit of 30 days from

the issue of the Order in Case No. 169 of 2011.

MSETCL’s Response

7.3.2. MSETCL replied that it had submitted Petition for Business Plan for the Second

Control Period from FY 2013-14 to FY 2015-16 and the Commission has already

issued Business Plan Order dated 11 January, 2013 in Case No. 137 of 2011.


7.3.3. MSETCL has complied with the directive issued by the Commission in this

regard.

7.4. Quantification of controllable and uncontrollable expenses

Directive

7.4.1. The Commission directed MSETCL to provide quantification of uncontrollable

expenses on each of the items identified by MSETCL, to be considered during the

scrutiny of the Petition for True up.

MSETCL’s Response

7.4.2. MSETCL submitted that it has provided rationale, justification and quantification of

uncontrollable expenses for Truing up of FY 2011-12 in the present Petition.

Further, MSETCL submitted comparison of each head of employee expenses vis-a-

vis FY 2010-11 and submitted reasons for the deviation in the response to the

compliance of directives. Further, MSETCL submitted the following tables wherein,

uncontrollable A&G expenses mentioned in the Petition have been quantified:


Control Period


Table 111: Uncontrollable A&G expenses submitted by MSETCL for FY 2011-

12 (Rs crore)

Particulars FY 2011-12

Security Expenses 15.46

Electricity Charges 30.58

Filing fee to Ministry of Corporate Affairs 2

Service Tax for lease Rent 0.88

Training Expenses 4.95

Conveyance & travelling and Vehicle

running expenses 2.95

Total 56.82

7.4.3. MSETCL further submitted that considering the actual inflation rate for FY 2011-

12, A&G expenses should be escalated using inflation rate of 8.07% vis--vis 7.16%

considered in the Order dated 18 May, 2012 in Case No. 169 of 2011. Similarly,

R&M expenses should be escalated using inflation rate of 7.69%, rather than 6.89%

used in the previous Order. MSTECL mentioned that during FY 2011-12, R&M

expenses are lower than the approved expenses as MSETCL limited the R&M

expenses on need-basis.


7.4.4. The Commission appreciates that MSETCL has adequately explained reasons

for uncontrollable expenses in the Petition itself. However, the Commission

noticed that MSETCL hadn’t provided quantification of the uncontrollable

expenses in the Petition, which MSETCL has provided later as part of its reply

regarding compliance to directives. The Commission directs that the

quantification of such expenses in tabular format is provided while submitting

Petitions in future.

7.5. Information on theft of electrical lines, plants and installations

Directive

7.5.1. In the previous Order, the Commission directed MSETCL to submit past five year

details of cases involving theft of electrical lines, plants and installation and the

impact of the same on ARR.

MSETCL’s Response


Control Period


7.5.2. MSETCL has provided the details vide letter No. MSETCL/MERC/MYT/2013-

14/15490 dated 9 December, 2013.


7.5.3. MSETCL has complied with the above directive.

7.6. Compliance report on investment of foreign exchange gain/loss in securities

Directive

7.6.1. The Commission during the proceeding of Case No. 169 of 2011 had observed that

the direction to invest the forex gain in securities authorised under the Indian Trust

Act 1882 has been issued to MSETCL on 29 December, 2011 and even after a time

period of 4 months which is sufficient to comply with the directive, MSETCL had

not complied with the directive. Hence, MSETCL was given a directive by the

Commission in the Order dated 18 May, 2012 in Case No. 169 of 2011 to comply

with the above mentioned directive at the earliest and submit the compliance report

to the Commission within 30 days from date of issue of the Order in Case No. 169

of 2011.

MSETCL’s Response

7.6.2. MSETCL submitted that after receipt of transmission charges for FY 2012-13 as

approved by the Commission in its Order in Case No. 51 of 2012 dated 21 May,

2012, investment of Rs. 111.20 crore which includes forex gain/loss has been made

in FY 2012-13 itself in securities authorized under the Indian Trust Act 1882.

7.6.3. MSETCL submitted that it had informed the Commission vide letter no. 13907

dated 28 September, 2012 that investment of forex gains/losses in securities will be

made only after recovery of full transmission charges for FY 2012-13 as allowed by

the Commission in the InSTS Tariff Order dated 21 May, 2012 in Case No. 51 of

2012, which was applicable from 1 June, 2012. MSETCL also submitted copies of

the various correspondences exchanged with the Commission in this regard in its

response to the compliance of this directive.


7.6.4. MSETCL has complied with the above directive issued by the Commission.


Control Period


8. APPLICABILITY OF THE ORDER

8.1.1. This Order on the True up of FY 2011-12, APR of FY 2012-13 and ARR for MYT

Second Control Period from FY 2013-14 to FY 2015-16 shall come into force with

effect from its date of issuance and shall continue to be in force for the entire MYT

Second Control Period till 31 March, 2016. The Commission will undertake the

mid-term review of MSETCL’s performance during the third quarter of FY 2014-15

in accordance with the MERC (MYT) Regulations, 2011. MSETCL is directed to

submit its Petition for mid-term review of its performance during the third

quarter of FY 2014-15, with detailed reasons for deviation in performance,

latest by 30 November, 2014.

8.1.2. With the above, MSETCL’s Petition in Case No. 39 of 2013 stands disposed off.

Sd/- Sd/-

(Chandra Iyengar) (Vijay L. Sonavane)

Member Member


Control Period


Appendix 1: List of persons who participated in the TVS held on 2 April, 2013

Sr. No. Name Organisation

1 Shri Pratap Mohite MSETCL

2 Shri S.J.Amberkar MSETCL

3 Ms A.S.Gupta MSETCL

4 Shri Tej Singh MSETCL

5 Shri Prashant Kandalgaonkar MSETCL

6 Shri Saurabh Jain MSETCL

7 Shri M.B.Mohire MSETCL

8 Shri Rajesh J. Pawor MSETCL

9 Ms Akshata Naik MSETCL

10 Ms Snehal Mathankar MSETCL

11 Shri Milind Bahadure MSETCL

12 Shri Kishor Jadhav MSETCL

13 Shri B.N.Khasale MSETCL

14 Ms A.M.Kumbhar MSETCL

15 Shri A.S.Kadam MSETCL

16 Shri S.G.Bhole MSETCL

17 Shri K.G.Mahabole MSETCL

18 Shri U.S.Bhagat STU

19 Shri Sanjay Kulkarni STU

20 Shri P.M.Buradkar MSLDC

21 Shri Amit Mittal IMACS

22 Shri Santosh Kumar Singh IMACS


Control Period


Appendix 2: List of persons who participated at Public Hearing held on 29

October, 2013

Sr. No. Name Organisation

1 Shri B.H. Gujrathi MSETCL

2 Shri Sonkavday M R MSETCL

3 Shri Rajesh Pawar MSETCL

4 Shri Prashant Kandalgaon MSETCL

5 Shri Shridhar R. Daftari MSETCL

6 Shri Walke M.C. STU/ MSETCL

7 Shri Santosh J. Ambekar MSETCL

8 Ms A.S. Gupta MSETCL

9 Shri Tej Singh MSETCL

10 Shri K.G. Mahabole MSETCL

11 Shri Sanjay S. Kulkarni STU/ MSETCL

12 Shri R.D. Chavan MSETCL

13 Shri S.G. Kelkar MSETCL

14 Shri Pratap Mohite MSETCL

15 Shri Sanjay R. Wagh MSETCL

16 Shri K.M.Jadhav MSETCL

17 Shri M.Q. Siddiqui MSETCL

18 Shri Prasad G. Narnaware MSETCL

19 Shri C.R. Bhosale MSETCL

20 Shri S.K. Ambekar MSETCL

21 Shri B.N. Khatale MSETCL

22 Ms A. M.Kumbhar MSETCL

23 Ms Akshata R. Naik MSETCL

24 Shri A.S.Kadam MSETCL

25 Ms Shriya MSETCL

26 Shri Kalpesh R MSETCL

27 Shri A.K. Lade MSLDC

28 Shri J.R. Kulkarni MSLDC

29 Shri George John Individual

30 Advocate Pavan P. Uttarwar Individual

31 Shri Saurabh Jain Individual

32 Ms Gauri Rane Individual

33 Shri Hasnain Rangnala Individual

34 Shri Ketan Patil IMaCS

35 Shri Himanshu Chawla IMaCS

36 Shri Abhijit Dhamdhe IPPAI

Documents

Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION ...mercindia.org.in/pdf/Order 58 42/MSETCL_Order _39 of 2013.pdf · Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION